The Government spends millions per year on direct subsidies for research and development (R&D) in New Zealand businesses.
New research by Motu Economic and Public Policy Research - a not-for-profit, non-partisan research institute – found that receiving an R&D grant almost doubles the probability that a firm introduces a major innovation, defined as a product or service that is new to the world.
Government support for R&D ranged from NZ$33 million to NZ$90 million per year during 2009–2013 in various forms, including training, advice and funding. There were two main types of R&D funding: project grants and capability building grants.
Adam Jaffe and Trinh Le from Motu studied the levels of innovation among firms who received subsidies as compared to those who were not funded using data from New Zealand’s Longitudinal Business Database. This is a longitudinal database that links administrative and tax data with survey data.
Jaffe and Le used seven measures of innovation outputs. Firms that received R&D grant in the previous three years were more innovative than other similarly characterised firms by every measure.
The study found no evidence that the effects of R&D grant receipt on these measures of innovation differ significantly between small to medium and larger firms, or between pre- and post-Global Financial Crisis periods.
“R&D grant receipt is estimated to increase the probability of applying for a patent by 55 to 65 percent,” said Dr Adam Jaffe, lead author of the research.