The effects of public R&D subsidies on firms' innovation activities in a transition economy : the case of Eastern Germany

This study analyzes the effects of public R&D policy schemes on the innovation activities of firms located in Eastern Germany. The main question in this context is whether public funds stimulate R&D activities or simply crowd out privately financed R&D. Empirically, we investigate the average causal effects of all public R&D schemes in Eastern Germany using a nonparametric matching approach. Compared to the case where no public financial means are provided, it turns out that firms increase their innovation activities by about four percentage points.