Journal of Technology Transfer

This paper analyzes the effects of the governmental financing instrument Spitzencluster-Wettbewerb (Leading-Edge Cluster Competition, LECC) on R&D expenditure of firms in Germany. The LECC promotes cooperative research among business firms and research institutions under the umbrella of a common strategy, which is pursued by regional cluster organizations. We measure the effect of LECC funding on private R&D spending as well as the effects of the policy instrument on the composition of R&D (internal vs. external). Our analysis is mainly based on data from the R&D survey for Germany. We combine pro-pensity score matching (to identify statistical twins) with a difference-in-differences esti-mator in order to measure the causal effects of the LECC. These results are complemented with the findings from expert interviews. Our results show that the LECC significantly increases R&D expenditures in comparison to non-funded firms. On average, we did not find evidence of crowding out. At the same time, we identified a greater leverage effect of the LECC for small and medium-sized firms. A comparison with companies that have been funded in other R&D-programs shows that the LECC leads to a greater increase in R&D expenditure in small and medium-sized enterprises (SMEs). The expert interviews in gen-eral confirm these results and indicate that there are different patterns at firm level depend-ing on firm size, strategy, and sector. In addition, they reveal that the effect of co-funding rules for R&D expenditure appears to be stronger for SMEs.