The impacts of public support for innovation on firm productivity and on private investment in R&D in manufacturing and services in Colombia

Abstract

This research analyzes the effectiveness of public support for innovation in the form of matching grants on productivity and on R&D intensity of manufacturing and service firms in Colombia, paying special attention to the impact of those funds aimed specifically at strengthening the innovation system. Results show that firms that received public funds for innovation have obtained significant improvements in productivity and have made greater efforts in R&D activities (compared to firms that did not receive matching grants). This suggests that public funds devoted to strengthening linkages among the different actors in the innovation system and to providing financial incentives to invest in R&D activities are effective mechanisms in the development of absorptive capacities, ultimately affecting both the learning process and the competitiveness of firms. These findings are particularly relevant for the design of public policies in developing countries, where innovation is a necessary condition for catching-up and economic upgrading.