High Tech R&D Subsidies: Estimating the Effects of Sematech

36 Pages Posted: 5 Sep 2000 Last revised: 18 Aug 2010

See all articles by Douglas A. Irwin

Douglas A. Irwin

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Peter J. Klenow

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 1994

Abstract

Sparked by concerns about their shrinking market share, 14 leading U.S. semiconductor producers, with the financial assistance of the U.S. government in the form of $100 million in annual subsidies, formed a joint R&D consortium -- Sematech -- in 1987. Using Compustat data on all U.S. semiconductor firms, we estimate the effects of Sematech on members' R&D spending, profitability, investment, and productivity. In so doing we test two hypotheses: the `commitment' hypothesis that Sematech obligates member firms to spend more on high- spillover R&D, and the `sharing' hypothesis that Sematech reduces duplication of member R&D spending. Whereas the commitment hypothesis provides a rationale for the government subsidies, the sharing hypothesis does not. We find that Sematech induced members to cut their overall R&D spending on the order of $300 million per year, providing support for the sharing hypothesis.

Suggested Citation

Irwin, Douglas A. and Klenow, Peter J., High Tech R&D Subsidies: Estimating the Effects of Sematech (December 1994). NBER Working Paper No. w4974. Available at SSRN: https://ssrn.com/abstract=226573

Douglas A. Irwin (Contact Author)

Dartmouth College - Department of Economics ( email )

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Peter J. Klenow

Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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