Heterogeneity of returns to business R&D: What does make a difference?

Business R&D spending has been showed to exert a positive direct as well as indirect, spillover effects on value added. Nevertheless, heterogeneity of the returns to R&D has been seldom examined. Using detailed sectoral data from Czechia over the period 1995-2015, this study finds that privately funded business R&D has both direct and spillover effects, but that the publicly funded part of business R&D only leads to spillovers. The results further suggest that both upstream and downstream spillovers matter, regardless of the source of funding, and that the R&D returns were heavily affected by the economic crisis. Lastly, private R&D offers significant returns only after reaching a critical mass, while the effects of public R&D spending do not profess such non-linearity. The heterogeneity of returns to business R&D needs to be reflected in the design of innovation policy.