The effect of credit guarantees on SMEs' R&D investments in Korea

The Korean government has invested a significant amount of resources through creditguarantee funds for promoting SMEs’ survival, performance and R&D investments. Thisstudy attempts to identify the determinants of providing credit guarantees and estimates theireffects on firms’ R&D expenditures. It takes into account the heterogeneity of variouscharacteristics of firms when looking at credit guarantees and in-house R&D investmentrelationships. This study identified factors that enhance the efficiency of funds and theireffects on firms’ R&D investment behaviours. It enables feedback effects on the publicfunds that were selected by the guaranteed firms. It proposes a number of policy measuresto promote a better balance between public and private investments to reduce risks ofbusiness failures.