This dissertation investigates the role of public support for R&D in product innovation. In particular, I consider the role of matching grant programs and develop a theoretical model to analyze optimal private and public choices in a game-theoretic framework. This research develops-theoretical models to examine welfare implications of various policies that promote R&D. The first chapter of my dissertation develops a theoretical model of product innovation where R&D effort is endogenous and its outcome uncertain. The government attempts to aid such efforts with a matching grant. I consider different scenarios depending on whether two parties act simultaneously, act sequentially, or take part in a dynamic cooperative game with a trigger strategy. I also consider the case when the products are exported and when they are not. I analyze situations when government intervention increases the chances of product innovation and when it does not. The second chapter introduces foreign competition in a goods market, and analyzes the effects of foreign competition on domestic private and public incentives to product innovate. Government uses matching grant programs to aid private attempts to develop new goods. The government also tries to protect the domestic firm by imposing import tariff. Two policies are then considered simultaneously to investigate the effect of trade liberalization on product innovation. The third chapter considers technological partnerships between private and public sectors as R&D promoting policy. I assume increasing returns in R&D, and study whether government should support product innovation by helping with fixed costs or variable costs associated with product R&D.

This thesis consists of five individual essays and an introductory chapter. The essays are all in the field of industrial dynamics and more specifically focus on firm entry and exit in Swedish industrial sectors. The essays mainly contribute to the empirical literature on entry and exit. In four of the five essays, panel data methods are used in the empirical investigation. The first essay presents the patterns of entry and exit in industrial sectors in Sweden and studies the importance of different determinants of entry and exit rates in industries. The second essay focuses on the relationship between entry and exit. The third essay has a regional perspective, focusing on regional determinants of entry and exit. It also investigates the importance of the differences in industry structure for differences in entry and exit rates across regions. The fourth chapter uses the theory of product life cycle to investigate how knowledge intensity differs in entering and exiting firms in different stages of the product life cycle. The fifth and last essay focuses on the importance of firm demography, in terms of firm size and age, for the decision to perform process R&D, product R&D or combine process with product R&D.