The Role of Subsidies in the Innovation Policy Mix - The Case of the Supporting Industry Program in Japan

Policy makers today are increasingly aware of the concept of an innovation policy mix which employs multiple policy instruments based on specific goals. However, the effects of such policy mix are not fully explored. This paper focuses on the "Supporting Industry Program (Sapo-in)" which has been introduced by the Ministry of Economy, Trade and Industry (METI) since 2006 as the new generation industrial policy mix supporting SMEs in Japan. The objective is to evaluate the effects of "soft-support measures" (i.e. consulting, matching, intermediation, etc.) as well as "hard support" (subsidies). Our samples consist of four categories of SMEs; those who had a) applied for the subsidy but did not receive it, b) obtained a subsidy as a main contractor, and c) obtained a subsidy as a collaborator, and d) not applied for the subsidy but had very similar characteristics with the companies in a) ~ c). We employed the amount of sales per year, the number of personnel, and the number of patent applications as output indicators. The results show that soft support measures have some impact in terms of patenting while financial support has very limited direct effects. Based on these results we suggest that the real role of subsidies is the "priming water" which pumps SMEs up to entry into an innovation contest surrounding innovation.