Output Additionality of Public Support for Innovation: Evidence for Irish Manufacturing Plants

Public support for private R&D and innovation is part of most national and regional innovation support regimes. In this paper we estimate the effect of public innovation support on innovation outputs in Ireland and Northern Ireland. Three dimensions of output additionality are considered: extensive additionality, in which public support encourages a larger proportion of the population of firms to innovate; improved product additionality in which there is an increase in the average importance of incremental innovation; and, new product additionality in which there is an increase in the average importance of more radical innovation. Using an instrumental variables approach, our results are generally positive, with public support for innovation having positive, and generally significant, extensive, improved and new product additionality effects. These results hold both for all plants and indigenously-owned plants, a specific target of policy in both jurisdictions. The suggestion is that grant-aid to firms can be effective in both encouraging firms to initiate new innovation and improve the quality and sophistication of their innovation activity. Our results also emphasise the importance for innovation of in-house R&D, supply-chain linkages, skill levels, and capital investment all of which may be the focus of complementary policy initiatives.