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, Kevin Mulligan, Justin Doran, Christian Rammer, Olubunmi Ipinnaiye

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)
43 Downloads (Pure)

Abstract

The subsidiaries of foreign-owned multinational frms make signifcant contributions
to national Research and Development (R&D) in many host countries. Policymakers in
host countries often support subsidiaries’ R&D eforts, through R&D grants and R&D tax
credits. A key objective of this funding is to leverage R&D-driven frm performance benefts for the host economy. However, the subsidiary’s parent frm 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 signifcant amounts
of scarce public R&D funding may translate into little, or no frm performance payofs
for the host economy. To address this issue, we construct a unique panel dataset, containing 24,404 observations of frms in Ireland over a 10-year period. Using this rich data,
we frst 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’ frm performance in the host country. Our study provides the frst evaluation
of (1) whether public R&D funding stimulates additional R&D investment in subsidiaries,
(2) whether policy-induced R&D drives subsidiaries’ frm performance in the host country, and (3) the diferential efects of R&D grants and R&D tax credits. We fnd 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.
Original languageEnglish
Number of pages42
JournalThe Journal of Technology Transfer
Early online date13 Feb 2023
DOIs
Publication statusEarly online date - 13 Feb 2023
Externally publishedYes

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