How R&D subsidies alter firm activities and behaviour

Public research and development (R&D) subsidies are often used to increase firms' R&D investments and innovation efforts and to spur firm-level additionalities, such as increased R&D inputs and innovation outcomes. However, relatively little is known about how such firm-level additionalities develop and interrelate over time. This study examines 15 cases of successful R&D projects to explore how additionalities from public subsidies are developed over time. We develop a process model outlining how different types of additionalities from public R&D subsidies develop and interrelate at the beginning of, during and after a project for science- and engineering-based firms. For science-based firms, public R&D subsidies appear to strengthen innovation and knowledge development after projects are completed and to increase firms' strategic R&D orientation. For engineering-based firms, subsidies leverage internal credibility and collaboration, which leads to increased R&D activities, mainly during projects. Given these results, we provide guidance for policy and practice regarding how different types of firms benefit from subsidised R&D projects both during and after the project period.