The effects of government financial support on business innovation in South Korea

This paper briefly explains the evolution of the Korean government's financial support for business innovation and then presents an economic analysis of the effects of the government's research and development (R&D) investment on innovation output at the firm level. The empirical analysis is based on the Korean Innovation Survey 2005 and uses probit regression models and matching estimators. It found that government funding generally has a positive effect on innovation output at the firm level. When it comes to the level of innovativeness, however, it is revealed that government financial support has a positive, but statistically insignificant, effect on achieving high innovativeness. This finding is especially noteworthy considering how hard the government has tried to level up the novelty of its national innovation system, promoting enterprises to being developers and not just adopters in the innovation process. South Korea has successfully caught up with advanced economies by adopting and adapting imported technologies at a rapid rate.