SMU SOE Seminar Series (November 12, 2025): Bang for the Buck: Aggregate Impact of Firm-Level R&D Incentives

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ABSTRACT

How R&D incentives affect individual firms and, in turn, shape aggregate growth? We develop a novel empirical framework, grounded in endogenous growth theory, allowing us to measure firms’ responsiveness to R&D incentives and to aggregate such responses. After validating the predictions of our framework us ing three different micro-datasets, we apply it to Compustat data. We find that (i) ignoring firm heterogeneity severely under-states the aggregate effectiveness of R&Dincentives, (ii) per dollar spent on R&D incentives, young (rather than small) f irms raise aggregate growth the most and (iii) our results are robust to knowledge spillovers, dynamics and borrowing constraints.

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