Evaluation of R&D- and innovation-supporting policies

In this report we study the effects of government financing policies aimed at promoting value creation and innovation. Our analysis includes the tax incentive scheme, Skattefunn (SKF), innovation-oriented policy of Innovation Norway (IN) and instruments of the Research Council of Norway (RCN), as well as export supporting programs by the Norwegian Export Credit Guarantee Agency (GIEK) and Export Credit Norway.

IN is a government agency that aims to promote firm growth through innovation programs, regional support and other industrial policies. In our analysis we focus only on IN’s innovation programs. RCN finances research and development (R&D) both in universities and institutes and in private firms. Our analysis comprises only the policy instruments oriented towards the private sector or joint projects between private firms and research institutions. SKF is a general tax incentive scheme provided in the tax legislation.

We compare profitability and growth in sales, value added, employment and productivity in firms that received support from IN, RCN or SKF during the period 2001-2013 with a control group of firms that did not receive such support. Further, we calculate the return on R&D investments for firms, which receive government support, and compare it with the return on R&D for firms without any public R&D-support. We also investigate the impact of government support on the propensity to patent, and the effect of export guarantees and export credit on export.

We find positive effects for IN, RCN and SKF on one or several indicators of growth in value creation, sales income or number of employees, and the effects become stronger as the amount of support increases. However, our findings do not necessarily reflect a causal relationship. Even if we control for some sources of bias it is not possible to control for every unobservable factor that simultaneously may affect both the probability of receiving support and the outcome variables. We find the most significant effects for the group of projects which receive government support above 1.5 million NOK. We find weak or no effects for support allocations below 500 000 NOK. Neither do we find positive effects on return to total assets or productivity for firms receiving support compared with the control group.

The return on R&D investment in firms receiving government support is lower than the return on R&D that is entirely privately financed. This is consistent with the fact that government support is channelled to projects believed to have positive effects beyond the purely commercial. The results show that both tax deductions (SKF) and direct subsidies from RCN and IN lead to more patents in Norwegian firms.

We find positive effects of export financing on Norwegian export. The results indicate that export financing contributes to growth in value creation in the business sectors that use government support schemes intensively.