Innovation, Productivity, and Spillover Effects: Evidence from Chile

This paper estimates the direct and spillover effects of two matching grants schemes designed to promote firm-level research and development (R&D) investment in Chile on firm productivity. Because the two programs target different kinds of projects—the National Productivity and Technological Development Fund (FONTEC) subsidizes intramural R&D, while the Science and Technology Development Fund (FONDEF) finances extramural R&D carried out in collaboration with research institutes—analyzing their effects can shed light on the process of knowledge creation and diffusion. The paper applies fixed-effects techniques to a novel dataset that merges several waves of Chile’s National Manufacturing Surveys collected by the National Institute of Statistics with register data on the beneficiaries of both programs. The results suggest that while both programs have had a positive impact on participants’ productivity, only FONDEF-funded projects have generated positive spillovers on firms’ productivity. The analysis reveals that the spillover effects on productivity display an inverted-U relationship with the intensity of public support. Spillover effects were found to occur only if firms were both geographically and technologically close.