Doctoral Dissertation Research: The direct and indirect effect of innovation subsidies


Eric Verhoogen
Professor of Economics and International and Public Affairs
David Alfaro Serrano
PhD Student


Government subsidies to support innovation in firms are a widespread policy. However, little is known about their effectiveness to promote technological upgrading and boost firm performance in developing countries. The existing rigorous studies about this type of intervention are focused on developed countries and high-tech industries, and infer technological improvement from patents and R&D expenditure. As a consequence, lessons are hard to extrapolate to the developing country context, where innovation is concentrated on the adoption of already established technologies and on performing small modifications to existing products, which are not suitable for patenting and can be hardly considered R&D. This project fills this gap in the literature by investigating the direct and indirect effects of innovation subsidies in Peru, a developing country, using directly collected data on technology use. The project opens the black box of the firm and allows to observe the changes that are triggered within a company when it receives support for innovative activities, shedding light on the mechanisms through which government support for innovation affects firm performance. The findings of this research advance understanding of the relationship between innovation subsidy programs and firm behavior, and also inform policy design in developing countries and international cooperation institutions, which have played an important role in the diffusion of interventions to promote productive development.