This report presents results from an evaluation of publicly-funded R&D assistance provided to New Zealand firms. We use recent econometric techniques to assess the impact of Technology New Zealand's R&D programmes on the economic performance of firms that have received the assistance. The problem of evaluation is that while the programmes' impact (independent of other factors) can truly be assessed only by comparing actual and counterfactual outcomes, the counterfactual is not observed. So the challenge of an evaluation is to create a convincing and reasonable comparison group for assisted firms in light of this 'missing data'. Our methodology involves matching firms that received assistance to comparable unassisted firms based on firm characteristics. We then compare changes (or more precisely difference in changes) in performances of the assisted group with the group of matched unassisted firms.
This is the first time that this type of methodology has been applied in an evaluation of Technology New Zealand. Qualitative evaluation methods that elicit information from programme participants often attribute all or most changes in firm performance to the government programme and these are very important in describing how R&D adds value to the business. However that does not take into account the fact that many firms that seek government assistance are already growing faster and performing better than an average firm. We matched a group of unassisted firms from the Statistics New Zealand prototype Longitudinal Business Database (LBD) which contains high quality and comprehensive firm-level data from 2000 to 20083. A second strength of this evaluation is that we are able to isolate the impact due to Technology New Zealand assistance from the impact due to other types of government support for business development, such as assistance provided to the firms by New Zealand Trade and Enterprise (NZTE). Earlier evaluations have failed to take multi-agency assistance into account.
Firms that receive Technology New Zealand assistance are higher performing than the average New Zealand firms even before they seek out R&D assistance. Prior to receiving assistance, on average assisted firms are larger, have higher sales and capital intensity and more likely to be exporting goods and undertaking R&D than firms that do not receive assistance.
We find that additional impacts depend upon the type of R&D assistance provided to a firm. Firms that receive Capability Building assistance show significantly higher employment growth compared with matched unassisted firms. Most of this growth occurs at the start of R&D assistance and is still evident three years following first receiving assistance. We also estimate short term impact on sales and infer a positive additional impact on value-added. The ultimate outcome for most government business assistance schemes, including R&D funding like the Capability Building assistance, is to raise the productivity of New Zealand firms. Encouragingly, we see a significant additional impact on multifactor productivity four years after first assistance.
In contrast, we find no overall additional impacts of Project Funding, even on intermediate outcomes. When we pool both types of assistance and examine the influence of firm size and prior R&D activity on the results, the pattern is clear. We found significant additional impacts only for small firms and for firms that had not undertaken R&D two years prior to receiving their first assistance. We saw no positive additional impacts either for large firms or firms that were already undertaking R&D.
We conclude that Technology New Zealand has a significant positive additional impact when it is targeted at firms that are building capability; that are small and that have not previously undertaken R&D. These findings are consistent with findings in the recent literature on impacts of publicly funded business R&D.