Research Insights: Does R&D Activity Stimulated by Chile’s FONDEF and FONTEC Programs Lead to Knowlege Spillovers?

Chile's FONDEF and FONTEC R&D grant programs both boost the productivity of direct beneficiaries, increasing total factor productivity (TFP) by around 4.2 percent. However, spillover effects are contingent on program design. Only FONDEF funded projects (requiring collaboration between firms and research centers) generate positive spillovers. FONTEC projects, which fund R&D within the firm, do not. Spillover effects are nonlinear according to the share of firms within a sectorregion receiving subsidies. Positive knowledge spillovers dominate when the share of treated firms is small. However, if the program supports a large share of a firms rivals, spillovers decline as a result of a business-stealing effect.