Skip to main page content
U.S. flag

An official website of the United States government

Dot gov

The .gov means it’s official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you’re on a federal government site.

Https

The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Access keys NCBI Homepage MyNCBI Homepage Main Content Main Navigation
. 2024;49(2):740-781.
doi: 10.1007/s10961-023-09995-9. Epub 2023 Feb 13.

R&D grants and R&D tax credits to foreign-owned subsidiaries: Does supporting multinational enterprises' R&D pay off in terms of firm performance improvements for the host economy?

Helena Lenihan  1 , Kevin Mulligan  1 , Justin Doran  2 , Christian Rammer  3 , Olubunmi Ipinnaiye  1
Affiliations

R&D grants and R&D tax credits to foreign-owned subsidiaries: Does supporting multinational enterprises' R&D pay off in terms of firm performance improvements for the host economy?

Helena Lenihan et al. J Technol Transf. 2024.

Abstract

The subsidiaries of foreign-owned multinational firms make significant contributions to national Research and Development (R&D) in many host countries. Policymakers in host countries often support subsidiaries' R&D efforts, through R&D grants and R&D tax credits. A key objective of this funding is to leverage R&D-driven firm performance benefits for the host economy. However, the subsidiary's parent firm may decide not to commercially exploit the results from host country-funded R&D projects, in the host country. Therefore, supporting subsidiaries' R&D presents a unique risk, that significant amounts of scarce public R&D funding may translate into little, or no firm performance payoffs for the host economy. To address this issue, we construct a unique panel dataset, containing 24,404 observations of firms in Ireland over a 10-year period. Using this rich data, we first evaluate the impact of R&D grants and R&D tax credits on subsidiaries' R&D. We then examine the link between policy-induced R&D from each policy instrument, and subsidiaries' firm performance in the host country. Our study provides the first evaluation of (1) whether public R&D funding stimulates additional R&D investment in subsidiaries, (2) whether policy-induced R&D drives subsidiaries' firm performance in the host country, and (3) the differential effects of R&D grants and R&D tax credits. We find that both R&D policy instruments drive subsidiary R&D, and that the policy-induced R&D results in substantial host country improvements in turnover, exports, and value added. Our results suggest several policy implications, particularly for economies pursuing an R&D strategy which targets foreign-owned subsidiaries.

Supplementary information: The online version contains supplementary material available at 10.1007/s10961-023-09995-9.

Keywords: Firm performance; Foreign-owned subsidiaries; Multinational enterprises (MNEs); Public support for R&D; R&D grants; R&D tax credits.

PubMed Disclaimer

Conflict of interest statement

Conflict of interestWe have no conflict of interest in relation to this article.

References

    1. Acemoglu, D., Akcigit, U., Alp, H., Bloom, N., & Kerr, W. (2018). Innovation, reallocation, and growth. American Economic Review,108(11), 3450–3491. 10.1257/aer.20130470 - DOI
    1. Achcaoucaou, F., Miravitlles, P., & León-Darder, F. (2017). Do we really know the predictors of competence-creating R&D subsidiaries? Uncovering the mediation of dual network embeddedness. Technological Forecasting and Social Change,116(1), 181–195. 10.1016/j.techfore.2016.10.019 - DOI
    1. Acheson, J., & Malone, R. (2020). Respect your elders: evidence from Ireland’s R&D tax credit reform. The Economic and Social Review,51(1), 105–131.
    1. Aguiar, L., & Gagnepain, P. (2017). European cooperative R&D and firm performance: Evidence based on funding differences in key actions. International Journal of Industrial Organization,53, 1–31. 10.1016/j.ijindorg.2016.12.007 - DOI
    1. Aerts, K. (2008). Carrying Flemish coals to Newcastle? R&D subsidies and foreign ownership. In K. Aerts & D. Czarnitzki (Eds.), Essays on the economics of evaluation: Public policy and corporate strategies in innovation (pp. 127–167). Katholieke Universiteit Leuven.

LinkOut - more resources