Government R&D Subsidy and Additionality of Biotechnology Firms: The Case of the South Korean Biotechnology Industry

Abstract

Government R&D subsidies are more important in latecomer countries of biotechnology industry, where venture capital has not been developed, and ratio of start-ups is high. Previous studies were limited to the promotion of input and output, such as private R&D investment and performance, through government R&D subsidies. However, these studies cannot reflect the change of a firm’s behavior (or strategy) by a government R&D subsidy. Therefore, this study extensively investigated the effects of government R&D subsidies in multifaceted aspects of input, output, and behavioral additionality. By adopting the propensity score matching (PSM) method, we found firms benefiting from government R&D subsidies had marked higher R&D investment in terms of input additionality and produced more technological innovation within a short period in terms of output additionality, although financial performance was not determined. Moreover, government R&D subsidies have accelerated strategic alliances and suppressed external financing in terms of behavioral additionality.