Public selection and financing of R&D cooperative projects: Credit versus subsidy funding

In this article we develop an analytical model of the selection process for R&D cooperative projects, to study the factors that motivate public project selection and corresponding funding, using two different financial instruments: subsidies and credits. For this purpose, we propose a three stage empirical strategy to analyse the differential individual effects of several factors on the decisions taken by the public agency. This analysis is based on project level data from cooperative R&D project calls under the Spanish PROFIT initiative, for the period 2000-2003. The main results show that the public agency uses the two financial instruments to address different objectives. First, some projects close to the market are well supported through credits, while basic research projects receive only selective support in the form of subsidies. Second, there is significant diversity in the selection and funding of technological areas. Third, regarding the explicit goal of fostering cooperation, the public agency selectively favours partnerships with universities and technology institutes through the award of subsidies. However, there seems to be less incentive for large consortia. Fourth, there are significant regional differences among financed projects and, also, our data show sharp yearly fluctuations.