Public Subsidies and Firm Innovation in Latin America: A Non-Parametric Assessment of Policy Effectiveness.

This study examines the impact of public grants on firms’ innovation expenditures using a large sample of Latin American firms. The methodology is based on the non-parametric matching procedure. The results indicate that public incentives have a positive and statistically significant effect on firms’ innovation spending. However, public grants do not boost additional net innovation spending. This may reflect the general structural weakness in Latin America's technological system, where complex relationships involving complementarities and synergies, typically found in the technological field, are not entirely fulfilled. Moreover, companies that utilize government funds tend to finance innovation by using their own financial resources more than non-granted companies. Although the data do not allow for identifying potential substitution effects, the analysis suggests that, without the grants, these firms would have been possibly less committed to innovation. This finding supports the idea of partial positive effects of public support on firms’ innovative activities.