The role of public loans in financing business R&D through the economic cycle

Should governments increase their efforts in R&D public funding during recession periods? The objective of the present study is to compare the effect of public aid to business R&D on technological inputs and outputs through the economic cycle. We contribute to this literature by examining the effect of one specific instrument of direct public support: selective loans for firms’ R&D projects. For the analysis, we consider Spanish firms supported through this kind of instrument for the periods 2002–2005 and 2010–2012. Our results suggest that the hypothesis of full crowding out of private R&D is rejected in both cycle periods, expansion and recession: public support has positive effects on the resources devoted to R&D activities. However, the effect of public support on some technological outputs depends on the cycle phase: firms supported by selective loans during the crisis are more likely to obtain product innovations.