R&D subsidies in permissive and restrictive environment: Evidence from Korea

• Main Authors: KOH, Yumi, LEE, Gea M.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: Innovations; Patent; R&D subsidy; Regulatory environment; Utility model; WTO subsidy rules; Asian Studies; Industrial Organization; Technology and Innovation
• Online Access: https://ink.library.smu.edu.sg/soe_research/2629; https://ink.library.smu.edu.sg/context/soe_research/article/3628/viewcontent/Koh.Lee.July29.2022_sv.pdf
• Institution: Singapore Management University

This paper investigates the extent to which a regulatory environment for R&D subsidies shapes the magnitude and direction of R&D subsidies set by a government and consequent innovation paths. When the WTO adopted a permissive regulatory environment, we find that the Korean government increased R&D subsidies significantly (89.21%) and selectively so for firms and industries with higher returns. Recipient firms conducted less basic research and more development research. Improvements in innovations were mostly incremental and minor. However, such changes did not persist once the WTO switched to a restrictive regulatory environment. Our findings show that the regulatory environment imposed by the WTO largely affects allocation of R&D subsidies and suggest that a permissive regulatory environment may not necessarily maximize the potential for breakthrough innovations.