Financing the “Valley of Death” Budget Gap in Research and Development: Spatial Models Approach

Nazari, Rogayeh; Emamverdi, Godratoallah

doi:10.22054/joer.2020.11901

Document Type : Research Paper

Authors

¹ Assistant Professor, Department of Economics, Islamic Azad University- Mamaghan Branch, Azarbayejan Gharbi

² Assistant Professor, Department of Economics, Islamic Azad University-Central Tehran Branch

https://doi.org/10.22054/joer.2020.11901

Abstract

Innovators and investors often claim that there is a “funding gap” or “valley of death” in the middle phase of the process between basic research and commercialization of a new product. This gap or valley has a significant impact on the productivity of financial incentives to support R&D activities to move the technology toward commercialization. Financial incentives include tax incentives, subsidies, grants, and other incentives. Each company faces the marginal rate of return and the marginal cost of capital for R&D expenditures, which are influenced by public R&D policies. This research aims to apply the complexity of the microeconomic conceptual framework into a regional form using CES functions. Therefore, three regions of Europe (OECD), South East Asia and Central Asia are selected to compare the effects of financial incentives. For this purpose, spatial dynamic panel models for the period 2005–2016 is used. By confirming the SDM model, government fiscal incentives have internal, external and total impacts as supportive policies that can stimulate R&D activities and their funding. The positive and significant total effect of tax incentives on R&D was confirmed in OECD countries and positive external influence was affirmed in South East Asia, but for Central Asian countries, the effect of tax incentives was not confirmed. There is also an interactive (substitution) relationship between direct support and tax incentives in OECD countries. This relationship is complementary to South East Asia and Central Asia countries.

Keywords

References

آرمن، سید عزیز، حسن فرازمند، حسین ملتفت و وحید کفیلی (1395)، «جرم و هم‌گرایی تولید سرانه: یک تحلیل مبتنی بر اقتصادسنجی فضایی»، فصلنامه علمی- پژوهشی مطالعات اقتصادی کاربردی ایران، سال پنجم، شماره 20:، صص 149-123.

بهمنی، مجتبی، آرش جمشیدنژاد، و امید جنابی (1394)، «تحلیل فضایی سرریزهای فناوری در کشورهای منتخب آسیایی». مدیریت توسعه فناوری، 2(3)، صص 125-105.

پیارات، وونگلیم (2010)، تامین مالی و تجاری‌سازی فناوری، شناسایی چالش‌ها و چگونگی ایجاد ظرفیت نوآوری در کشورها، مترجم: مرضیه اسفندیاری، چاپ اول، انتشارات پیک نور.

علی عظیمی، ناصر و سجاد برخورداری (1387)، «اقتصاد دانش‌محور در جنوب شرق آسیا». رهیافت. شماره 14، صص 128-111.

گوگردجیان، احمد و فاطمه رحیمی (1391)، «آثار سرریزهای تحقیق و توسعه و نوآوری شرکای بزرگ تجاری بر رشد اقتصادی ایران (2009-2000)»، پژوهش‌های رشد و توسعه اقتصادی، شماره 9(3)، صص 24-9.

مهرآرا، محسن و نیک‌پی محمدیان (1394)، «بررسی اقتصادی جرم و اثرات سرریز بین استانی آن در ایران: یک رویکرد پنل فضایی»، فصلنامه علمی- پژوهشی مدلسازی اقتصادی، دوره 9، شماره 29، صص 62-43.

Anselin L. (1988). “Model Validation in Spatial Econometrics: A Review and Evaluation of Alternative Approaches”. International Regional Science Review, 11(3):279-316.

Anselin L. (2003). “Spatial Externalities, Spatial Multipliers, and Spatial Econometrics”. International Regional Science Review, 26(2):153-66.

Arbia G. (2014). “Spatial Econometrics: A Broad View Foundations and in Econometrics”,Vol.8,No 3-4:145-265.

Autant‐Bernard C, LeSage JP. (2011). “Quantifying Knowledge Spillovers Using Spatial Econometric Models”. Journal of Regional Science, 51(3):471-96.

Belotti F, Hughes G, Mortari AP, editors. (2013). XSMLE-A Command to Estimate Spatial Panel Models in Stata. German Stata Users Group Meeting, Potsdam, Alemania, 1-18.

Belotti F, Hughes G, Piano Mortari A. (2016). “Spatial Panel Data Models Using Stata”.CEIS Research Paper,University of Rom Tor Vergata, No 373, 1-41.

Bivand RS, Pebesma EJ, Gómez-Rubio V. (2008). Hello World: Introducing Spatial Data. Applied Spatial Data Analysis with R,1-15.

Bloom N, Griffith R, Van Reenen J. (2002). “Do R&D tax Credits Work? Evidence from a Panel of Countries 1979–1997”. Journal of Public Economics, 85(1):1-31.

Busom I. (2012). Tax incentives or subsidies for R&D? Working Paper, n2012-056.UNU-MERIT,32 P.

Bygrave WD, Timmons J. (1992). Venture Capital at the Crossroads, 141-160

Capron H, de la Potterie BVP. (1997). “Public Support to R&D Programmes: An Integrated Assessment Scheme OCDE”. Policy Evaluation in Innovation and Technology Towards Best Practices OCDE París, 35-47.

Carvalho A. (2012). “Why are tax Incentives Increasingly Used to Promote Private R&D?”. Economic Essays 10,113-130.

Chang AC. (2018). “Tax Policy Endogeneity: Evidence from R&D tax Credits”. Economics of Innovation and New Technology,1-25.

Corrado L, Fingleton B. (2012). “Where is the Economics in Spatial Econometrics?”. Journal of Regional Science, 52(2):210-39.

David PA, Hall BH, Toole AA. (2000). “Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence”. Research Policy, 29(4-5):497-529.

Elhorst JP. (2010). “Applied Spatial Econometrics: Raising the Bar”. Spatial Economic Analysis,5(1):9-28.

Evans, D. L. (2002). “The Advanced Technology Program: Reform with a Purpose”. US Department of Commerce, February, p. 1.

Falk M. (2006). “What Drives Business Research and Development (R&D) intensity across Organisation for Economic Co-operation and Development (OECD) countries?”. Applied Economics, 38(5):533-47.

Falk M. R&D. (2007). “Spending in the High-tech Sector and Economic Growth”. Research in Economics, 61(3):140-7.

Griliches Z, Lichtenberg FR (1984). “R&D and productivity growth at the industry level: is there still a relationship? R&D, patents, and productivity”. University of Chicago Press; 1984. p. 465-502.

Guellec D, de la Potterie BvP. (2000). “Applications, grants and the value of patent”. Economics Letters, 69(1):109-114.

Guellec, D. and B. V. P. De La Potterie (2003). "The impact of public R&D expenditure on business R&D*." Economics of Innovation and New Technology, 12(3): 225-243.

Guellec D, Van Pottelsberghe De La Potterie B. (2003). “The impact of public R&D expenditure on business R&D”. Economics of innovation and new technology, 12(3):225-43.

Hall B, Van Reenen J. (2000). “How effective are fiscal incentives for R&D? A review of the evidence”. Research Policy, 29(4-5):449-69.

Herrera M. (2017). “Spatial Econometrics methods using stata”. Luxembourg institute of socio- Economic Research, National university of ststa (Argentina) , Belval, 15^th.

Hoff, A. (2004). “The linear approximation of the CES function with n input variables”. Marine Resource Economics, pages 295–306.

Lach S.(2007). “Immigration and prices”. Journal of Political Economy .115(4):548-87.

Lee LF. (2004). “Asymptotic Distributions of Quasi‐Maximum Likelihood Estimators for Spatial Autoregressive Models”. Econometrica, 72(6): 1899-925.

LeSage J, Pace RK. (2009). Introduction to spatial econometrics: Chapman and Hall/CRC, 374 Pages.

Levy DM. (1990). “Estimating the impact of government R&D”. Economics Letters, 32(2):169-73.

Levy, D. M. & Terleckyj, N. E. (1983). “Effects of government R&D on private R&D investment and productivity: a macroeconomic analysis”. The Bell Journal of Economics, 14(2). 551-561.

Lichtenberg, F. R. (1987). “The effect of government funding on private industrial research and development: a re-assessment”. The Journal of Industrial Economics, 36(1). 97-104.

Liu X, Buck T. (2007). “Innovation performance and channels for international technology spillovers: Evidence from Chinese high-tech industries”. Research policy, 36(3):355-66.

Lumenga-Neso O, Olarreaga M, Schiff M. (2005). “Onindirect'trade-related R&D spillovers”. European Economic Review,49(7):1785-98.

Maddala GS. (1983). “Limited-dependent and qualitative variables in econometrics”. Cambridge university press.

Mamuneas TP, Nadiri MI. (1996). “Public R&D policies and cost behavior of the US manufacturing industries”. Journal of Public Economics, 63(1):57-81.

Mateut S. (2018). “Subsidies, financial constraints and firm innovative activities in emerging economies”. Small Business Economics, 50(1):131-62.

Montmartin B, Herrera M, Massard N (2018). “The impact of the French policy mix on business R&D: how geography matters”. Observatoire Francais des Conjonctures Economiques (OFCE).1-36.

Montmartin B, Herrera M. (2015). “Internal and external effects of R&D subsidies and fiscal incentives: Empirical evidence using spatial dynamic panel models”. Research Policy, 44(5): 1065-79.

Montmartin B, Massard N. (2015). “Is financial support for private R&D always justified? A discussion based on the literature on growth”. Journal of Economic Surveys, 29(3):479-505.

Montmartin B. (2013). “Centralized R&D subsidy policy in an NEGG model: A welfare analysis”. Recherches économiques de Louvain, 79(1):5-34.

O,Sullivaan,David and David Unwin.(2010). Geographic Information analysis, Hoboken, NJ: John Wiley,2^nd ed:1-64.

Osawa, Y. and Murakami, M. (2002). “Development and Application of a New Methodology of EvaluatingIndustrial R&D Projects”. R&D Management, Vol. 32, No. 1, pp. 79-85.

Pellens M, Peters B, Hud M, Rammer C, Licht G. (2018). Public investment in R&D in reaction to economic crises-a longitudinal study for OECD countries.(1-18)

R.E.Johnson,(1966). Technical Progress and Innovation, 18 Oxford Economic Papers, New Series 158,at 160-610.

Romer PM. (1990). “Endogenous technological change”. Journal of political Economy,98(5, Part 2):S71-S102.

Sensenbrenner, F. J. (1998). Unlocking Our Future: Toward A New National Science Policy, Committee, Report, 105-B, September, P. 40.

Sullivaan, D & Unwin, D. (2003). Geographic Information analysis, John Wiley & Sons, INC, 439 Pages.

Tidd J, Bessant J, Pavitt K. (2005). Managing innovation integrating technological, market and organizational change: John Wiley and Sons Ltd.608 Pages.

Tsai Y-H. (2005). “Quantifying urban form: compactness versus' sprawl”. Urban studies, 42(1):141-61.

Wang X, Fang H, Zhang F, Fang S. (2018). “The Spatial Analysis of Regional Innovation Performance and Industry-University-Research Institution Collaborative Innovation—An Empirical Study of Chinese Provincial Data”. Sustainability,10(4):1243.

Warda J. (2005). “Measuring the Value of R&D Tax Provisions: A Primer on the B-index for Analysis and Comparisons. OMC Working Group on Design and Evaluation of fiscal Measures to Promote Business Research”. Development and Innovation, 1-29.

Wilson DJ. (2009). “Beggar thy Neighbor? The in-state, out-of-state, and Aggregate Effects of R&D tax Credits”. The Review of Economics and Statistics, 91(2):431-6.

Wolff, G. B. & Reinthaler, V. (2008). “The Effectiveness of Subsidies Revisited: Accounting for Wage and Employment Effects in Business R&D”. Research Policy, 37(8). 1403-1412.

Wonglimpiyarat J. (2010). “Innovation Index and the Innovative Capacity of Nations”. Futures, 42(3):247-53.

Yu J, De Jong R, Lee L-f. (2008). “Quasi-maximum Likelihood Estimators for Spatial Dynamic Panel Data with Fixed Effects when Both n and T are Large”. Journal of Econometrics, 146(1):118-34.

Economics Research

Financing the “Valley of Death” Budget Gap in Research and Development: Spatial Models Approach

References

References

Volume 20, Issue 76
April 2020
Pages 81-127

Financing the “Valley of Death” Budget Gap in Research and Development: Spatial Models Approach

References

References

Volume 20, Issue 76April 2020Pages 81-127

Volume 20, Issue 76
April 2020
Pages 81-127