We quantify the efficiency gains from targeting R&D subsidies to fields with the highest knowledge spillover externalities. By combining new measures of spillovers and private returns with field-specific structural estimates of R&D costs, we develop a framework to estimate the spillover return rate of a marginal subsidy in any given field. Our results show substantial welfare gains from targeted innovation policies: within-country returns from optimal targeting are at least 40% higher than those from uniform subsidies. Moreover, coordinating field-specific subsidies across OECD countries could increase returns by an additional 30%.

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4 November 2021     Paper Number CEPDP1813

Download PDF - Efficient industrial policy for innovation: Standing on the shoulders of hidden giants

This CEP discussion paper is published under the centre's Growth programme.