The Impact of Government Financial Assistance on the Scope and Direction of Firm Innovation

Abstract

Governments spend hundreds of billions of dollars each year financing private innovation. We ask whether this spending expands, redirects, or reallocates research. We take a Salop model to U.S. public firms from 2000 to 2021. We compare recipients with close and distant rivals using Good Jobs First awards, patent data, and text-based product-market overlap. Distant rivals provide the preferred reading of the treated firm’s own response. Recipients’ patenting scale rises by about 4 percent relative to distant product-market controls. Nearby rivals do not change how much they patent. Direction shifts toward the industry’s most-cited technologies, strongest for cash grants.