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The economic impact of subsidized industrial R&D in Israel

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Israel offers contingent subsidies to selected industrial R&D projects, with the purpose of creating high–quality jobs, reducing the trade deficit, increasing productivity and promoting growth. In 1987–94, 1,200 firms received $1,400 million of subsidies in support of $3,500 million of R&D (in constant 1996 dollars). We estimate that this R&D generated more than $31,000 million of sales, increasing industrial employment by about 10% and contributing to the trade balance a sum slightly less than the entire private sector deficit in the current account. It added 0.3% to GDP in increased productivity, each dollar of supported R&D adding an additional $0.45 to GDP and earning the economy a direct annual return of 13.4%. Electronics, broadly defined, received roughly half the subsidies while accounting for nearly two thirds of the gains; small firms that received one sixth of the subsidies contributed over a quarter of the gains.
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Document Type: Original Article

Affiliations: Department of Economics and Monaster Center for Economic Research, Ben–Gurion University, Israel [email protected]

Publication date: 2002-06-01

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