Conte, Andrea and Schweizer, Philip and Dierx, Adriaan and Ilzkovitz, Fabienne (2009): An analysis of the efficiency of public spending and national policies in the area of R&D. Published in: European Economy, Occasional Paper No. 54 (September 2009): pp. 1-63.
Download (1371Kb) | Preview
Improving the quality of public finances is a major challenge for European policy makers. The economic crisis has increased budgetary pressures and accentuated the tension between the need to sustain public spending aimed at raising the EU growth potential and the increased scarcity of public resources. Rising the efficiency and effectiveness of public spending in growth-enhancing areas such as education, R&D and innovation has become, therefore, even more important. This paper reviews the innovation performance of the different EU Member States and provides estimates of the relative efficiency of their R&D spending. In doing so, it aims at moving the policy discussion from mere volume-based policy targets towards a better assessment of the quality and effects of public R&D spending. The main contribution of this paper is therefore the identification of both (1) a suitable methodology for the evaluation of efficiency levels across Member States and (2) structural and policy determinants which may contribute to raise efficiency levels of R&D spending across countries and over time. Results indicate that there exist large cross-country differences in terms of measured efficiency, which is an indication that in many Member States there remains a significant potential for further improvement. Currently, there appears to be a divide in efficiency levels between old and new Member States. However, there is some evidence that the new Member States are catching up. The estimated efficiency scores indicate that all EU Member States have improved their efficiency levels over time. There is evidence that the efficiency of R&D spending is higher in countries with a strong knowledge base which, in turn, implies that increases in R&D spending do not necessarily lead to reductions in efficiency levels. Other factors that positively affect efficiency levels include the high-tech specialisation of the economy, the level of investment in education, the employment share in science and technology, and the degree of protection of intellectual property rights. Finally, a R&D tax treatment more oriented towards fiscal incentives rather than direct subsidies appears to have a positive effect on the efficiency level of R&D spending across EU Member States. This work is based on both a quantitative measurement of efficiency levels and a qualitative analysis of the policy instruments used in the Member States to promote R&D efficiency and effectiveness. Efficiency scores are calculated by means of the Stochastic Frontier Analysis for a set of input and output indicators in order to overcome the limitations associated with each individual indicator. A complementary survey of national governments highlights some further policy instruments that could contribute to increase the efficiency of R&D and innovation policies, in particular at the national level. The results of the survey argue in favour of adopting a systemic approach to R&D, education and innovation policies, including three main elements: (i) adapting educational programmes and the research infrastructure to the needs of science and industry; (ii) making a sustained commitment to knowledge investment by adopting medium-term funding programmes; and (iii) evaluating existing R&D programmes in order to determine which policy tools are the most effective and in which areas R&D investments offer the highest returns. More recently, Member States have introduced R&D spending measures specifically targeted to deal with the consequences of the economic crisis. A closer look at these measures reveals that Member States consider direct grants and offers of tax relief as appropriate instruments to counteract the effects of the crisis. It should be clear that such policy measures should be tailored to the specific needs and strengths of every Member State.
|Item Type:||MPRA Paper|
|Original Title:||An analysis of the efficiency of public spending and national policies in the area of R&D|
|Keywords:||Public Finance, Efficiency, R&D spending, patents, innovation policy.|
|Subjects:||H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences; Diffusion Processes
|Depositing User:||Andrea Conte|
|Date Deposited:||29. Jun 2010 01:59|
|Last Modified:||16. Feb 2013 05:20|
Acs, Zoltan J. & Audretsch, David B. 1987. Innovation, Market Structure and Firm Size. The Review of Economics and Statistics, Vol. 69 (No. 4), pp. 567-574
Acs, Zoltan J., Audretsch, David B., & Feldman, Maryann P. 1994a. R&D Spillovers and Innovative Activity. Managerial and Decision Economics, Vol. 15(2), pp. 131–138
Acs, Zoltan J., Audretsch, David B., & Feldman, Maryann P. 1994b. R&D Spillovers and Recipient Firm Size. Review of Economics and Statistics, Vol. 4(2), pp. 336–340
Aerts, Kris; Czarnitzki, Dirk. 2004. Using Innovation Survey Data to Evaluate R&D Policy: The Case of Belgium. ZEW Discussion Paper, No. 04-55
Afonso, Antonio, & St. Aubyn, Miguel. 2006. Cross-Country Efficiency of Secondary Education Provision: A Semi-Parametric Analysis with Non-Discretionary Inputs. Economic Modelling, Vol. 23(3), pp. 476–491
Afonso, António, Schuknecht, Ludger, & Tanzi, Vito. 2005. Public Sector Efficiency: An International Comparison. Public Choice, Vol. 123(3), 321–347
Ames, Edward. 1961. Research, Invention, Development and Innovation. American Economic Review, Vol. 51(3), pp. 370–381
Audretsch, David B., & Feldman, Maryann P. 1996. R&D Spillovers and the Geography of Innovation and Production. American Economic Review, Vol. 86(3), pp. 630–640
Audretsch, David B., & Vivarelli, Marco. 1996. Firms Size and R&D Spillovers: Evidence from Italy. Small Business Economics, Vol. 8(3), pp. 249–258
Bassanini, Andrea, Scarpetta, Stefano, & Visco, Ignazio. 2000. Knowledge, Technology and Economic Growth: Recent Evidence from OECD Countries. OECD Economics Department Working Paper No. 259
Bernstein, Jeffrey I., & Nadiri, M. Ishaq. 1988. Interindustry R&D Spillovers, Rates of Return, and Production in High-Tech Industries. American Economic Review, Vol. 78(2), pp. 429–434
Bernstein, Jeffrey I., & Nadiri, M. Ishaq. 1989. Research and Development and Intra-industry Spillovers: An Empirical Application of Dynamic Duality. Review of Economic Studies, Vol. 56(2), pp. 249–267
Bilbao-Osorio, Beñat, & Rodríguez-Pose, Andrés. 2004. From R&D to Innovation and Economic Growth in the EU. Growth and Change, Vol. 35(4), pp. 434–455
Capron, Henri, & Cincera, Michele. 1998. Assessing the R&D Determinants and Productivity of World-wide Manufacturing firms, Annales d’Economie et de Statistiques, 49/50, pp. 565-587
Cassiman, Bruno, & Veugelers, Reinhilde. 2002. R&D Cooperation and Spillovers: Some Empirical Evidence from Belgium. American Economic Review, Vol. 92(4), pp. 1169–1184
Cincera, Michele, Czarnitzki, D., & Thorwarth, S. 2008. Efficiency of public spending in support of R&D activities: An international comparison, Final report of a study commissioned by the European Commission (DG ECFIN)
Coe, David T., & Helpman, Elhanan. 1995. International R&D Spillovers. European Economic Review, Vol. 39(5), pp. 859–1073
Cohen, Wesley M.; Levin, Richard C. & Mowery, David C. 1987. Firm Size and R&D Intensity: A Re-Examination. The Journal of Industrial Economics, Vol. 35 (4), pp. 543-565
Comanor, William S. 1967. Market Structure, Product Differentiation and Industrial Research. The Quarterly Journal of Economics, Vol. 81, pp. 639-657
Conte, Andrea. 2006. The Evolution of the Literature on Technological Change over time: A Survey. Max Planck Institute of Economics, Discussion Paper No. 107
Conte, A. & Vivarelli, M., 2005. "One or Many Knowledge Production Functions? Mapping Innovative Activity Using Microdata, IZA - Institute for the Study of Labor, Working Paper No. 1878
Crepon, Bruno, Duguet, Emmanuel, & Mairesse, Jacques. 1998. Research, Innovation and Productivity: An Econometric Analysis at the Firm Level. Economics of Innovation and New Technology, Vol. 7(3), pp. 115–156
D’Aspremont, Claude, & Jacquemin, Alexis. 1988. Cooperative and Noncooperative R&D in Duopoly with Spillovers. American Economic Review, Vol. 78(5), pp. 1133– 1137
David, Paul A., Hall, Bronwyn H., & Toole, Andrew A. 2000. Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence. Research Policy, Vol. 29(4-5), pp. 497–529
European Commission. 2007. Key Figures 2007. Towards a European Research Area. Science, Technology and Innovation. Falk, Rahel, & Leo, Hannes. 2006. What Can Be Achieved By Special R&D Funds When There is No Special Leaning Towards R&D Intensive Industries? WIFO Working Paper No. 273
Farrell, M. J. 1957. The Measurement of Productive Efficiency. Journal of the Royal Statistical Society, Vol. 120(3), pp. 253–290
Fellner, William. 1951. The Influence of Market Structure on Technological Progress. The Quarterly Journal of Economics, Vol. 65 (No. 4), pp. 556-577
Goolsbee, Austan. 1998. Does Government R&D Policy Mainly Benefit Scientists and Engineers? American Economic Review, Vol. 88(2), pp. 298–302
Griliches, Zvi. 1979. Issues in Assessing the Contribution of Research and Development to Productivity Growth. Bell Journal of Economics, Vol. 10(1), pp. 92–116
Guellec, D.; Van Pottelsberghe, B. 2000. The Impact of Public R&D Expenditure on Business R&D. OECD Science, Technology and Industry Working Papers, Vol. 2000/4
Guellec, Dominique, & de la Potterie, Bruno Van Pottelsberghe. 2004. From R&D to Productivity Growth: Do the Institutional Settings and the Source of Funds of R&D Matter? Oxford Bulletin of Economics and Statistics, Vol. 66(3), pp. 353–378
Guellec, Dominique, & Van Pottelsberghe De La Potterie, Bruno. 2001. The Effectiveness of Public Policies in R&D. Revue D’Economie Industrielle, Vol. 94(1), pp. 49–68
Guellec, Dominique, & Van Pottelsberghe De La Potterie, Bruno. 2003. The Impact of Public R&D Expenditure on Business R&D. Economics of Innovation and New Technology, Vol. 12(3), pp. 225–243
Hall, Bronwyn H., & Reenen, John Van. 2000. How Effective are Fiscal Incentives for R&D? A Review of the Evidence. Research Policy, Vol. 29(4-5), pp. 449–469
Herrera, Santiago, & Pang, Gaobo. 2005. Efficiency of Public Spending in Developing Countries : An Efficiency Frontier Approach. World Bank Policy Research Working Paper No. 3645
Jaffe, Adam B. 1986. Technological Opportunity and Spillovers of R&D: Evidence from Firms’Patents, Profits, and Market Value. American Economic Review, Vol. 76(5), pp. 984–1001
Jaffe, Adam B., Trajtenberg, Manuel, & Henderson, Rebecca. 1993. Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations. Quarterly Journal of Economics, Vol. 108(3), pp. 577–598
Jaumotte, F., & Pain, N. 2005a. From Ideas to Development: The Determinants of R&D and Patenting. OECD Economics Department Working Paper No. 457
Jaumotte, F., & Pain, N. 2005b. An Overview of Public Policies to Support Innovation. OECD Economics Department Working Paper No. 456
Jones, Charles I., & Williams, John C. 1998. Measuring the Social Return to R&D. Quarterly Journal of Economics, Vol. 113(4), pp. 1119–1135
Lee, Hak-Yeon, & Park, Yong-Tae. 2005. An International Comparison of R&D Efficiency: DEA Approach. Asian Journal of Technology Innovation, Vol. 13(2), pp. 207–222
Lee, Tom, & Wilde, Louis L. 1980. Market Structure and Innovation: A Reformulation. Quarterly Journal of Economics, Vol. 94(2), pp. 429–436
Levin, Richard C.; Klevorick, Alvin K.; Nelson, Richard R. and Winter, Sidney G.; Link, Albert N. & Bozeman, Barry. 1991. Innovative Behavior in Small-Sized Firms. Small Business Economics, Vol. 3 (No. 3), pp. 179-184
Los, Bart, & Verspagen, Bart. 2000. R&D Spillovers and Productivity: Evidence from U.S. Manufacturing Microdata. Empirical Economics, Vol. 25(1), pp. 127–148
Lucas, Robert E. Jr. 1988. On The Mechanics Of Economic Development. Journal of Monetary Economics, Vol. 22(1), pp. 3–42
Malerba, 2002, Sectoral Systems of Innovation and Production, Research Policy, Vol. 31, pp. 247-264
Mandl, U.; Dierx, A. & Ilzkovitz, F. 2008. The Effectiveness and Efficiency of Public Spending, European Economy, Economic Paper No. 301
Mansfield, Edwin, Rapoport, John, Romeo, Anthony, Wagner, Samuel, & Beardsley, George. 1977. Social and Private Rates of Return from Industrial Innovations. Quarterly Journal of Economics, Vol. 91(2), pp. 221–240
Mansfield, Edwin. 1981. Composition of R&D Expenditures: Relationship to Size of Firm, Concentration and Innovative Output. The Review of Economics and Statistics, Vol. 63 (No. 4), pp. 610-615
Mansfield, Edwin. 1985. How Rapidly Does New Industrial Technology Leak Out? Journal of Industrial Economics, Vol. 34(2), pp. 217–223
Marshall, Alfred. 1920. Principles of Economics. 8th edn. London: Macmillan and Co. Ltd. (1st edition: 1890)
Martin, Stephen, & Scott, John T. 2000. The Nature of Innovation Market Failure and the Design of Public Support for Private Innovation. Research Policy, Vol. 29(4-5), pp. 437–447
MERIT, 2003. The Brain-Drain - Emigration Flows for Qualified Scientists
Nelson, Richard R. 1959. The Simple Economics of Basic Scientific Research. The Journal of Political Economy, Vol. 67 (No. 3), pp. 297-306
OECD. 2006a. STI Outlook 2006 - Internationalisation of R&D. DSTI/STP(2006)
OECD. 2006b. Evaluation of Publicly Funded Research: Recent Trends and Perspectives. DSTI/STP(2006)
OECD. 2007a. Assessing The Socio-Economic Impacts of Public R&D
OECD. 2007b. Innovation and Growth – Rationale for an Innovation Strategy
OECD. 2008. Science, Technology and Industry Outlook
OECD. 2009. First Interim Report on the OECD's Strategic Response to the Financial and Economic Crisis. C(2009)26
Ortega-Argilés, Raquel; Piva, Mariacristina; Potters, Lesley; Vivarelli, Marco. 2009. Is Corporate R&D Investment in High-Tech Sectors More Effective?, Discussion Paper No. 3945, Institute for the Study of Labor (IZA), Bonn
Park, Walter G. 1995. International R&D Spillovers and OECD Economic Growth. Economic Inquiry, Vol. 33(4), pp. 571–91
Park, Walter G. 2008. International Patent Protection: 1960-2005. Research Policy, Vol. 37(4), pp. 761–766
Pavitt, Keith. 1982. R&D, Patenting and Innovative Activities: A Statistical Exploration. Research Policy, Vol. 11(1), pp. 33–51
Pavitt, Keith. 1984. Sectoral Patterns of Technical Change: Towards a Taxonomy and a Theory. Research Policy, Vol. 13 (No. 6), pp. 343-373
Romer, Paul M. 1986. Increasing Returns and Long-Run Growth. Journal of Political Economy, Vol. 94(5), pp. 1002–1037
Romer, Paul M. 1990. Endogenous Technological Change. Journal of Political Economy, Vol. 98(5), pp. S71–S102
Rosenberg, Nathan. 1976. Perspectives on Technology. Cambridge: Cambridge University Press.
Rothwell, Roy. 1989. Small Firms, Innovation and Industrial Change. Small Business Economics, Vol. 1 (No. 1), pp. 51-64.
Scherer, Frederic M., & Harhoff, Dietmar. 2000. Technology Policy for a World of Skew-Distributed Outcomes. Research Policy, Vol. 29(4-5), pp. 559–566.
Scherer, Frederic M., Harhoff, Dietmar, & Kukies, Jorg. 2000. Uncertainty and the Size Distribution of Rewards from Innovation. Journal of Evolutionary Economics, Vol. 10(1-2), pp. 175 –200.
Schumpeter, Joseph. 1934. The Theory of Economic Development. Cambridge (Mass.): Harvard University Press, 1st edn. 1912.
Solow, Robert M. 1956. A Contribution to the Theory of Economic Growth. Quarterly Journal of Economics, Vol. 70(1), pp. 65–94.
Solow, Robert M. 1957. Technical Change and the Aggregate Production Function. Review of Economics and Statistics, Vol. 39(3), pp. 312–320.
Sterlacchini, Alessandro. 1994. Technological Opportunities, Intra-Industry Spillovers and Firm R&D Intensity. Economics of Innovation and New Technology, Vol. 3, pp. 123–137.
Van Pottelsberghe, Bruno. 2008. Europe's R&D: Missing the Wrong Targets? Bruegel Policy Brief, Issue 2008/03, February 2008
Verspagen, Bart. 1995. R&D and Productivity: A Broad Cross-Section Cross-Country Look. Journal of Productivity Analysis, Vol. 6(2), pp. 117–135.
Wang, Eric C., & Huang, Weichiao. 2007. Relative Efficiency of R&D Activities: A Cross-Country Study Accounting for Environmental Factors in the DEA Approach. Research Policy, Vol. 36(2), pp. 260–273.
Warda, Jacek. 2006. Tax Treatment of Business Investments in Intellectual Assets: An International Comparison. OECD Science, Technology and Industry Working Paper Series, No. 4.
Wolff, Edward N., & Nadiri, M. 1993. Spillover Effects, Linkage Structure, and Research and Development. Structural Change and Economic Dynamics, Vol. 4(N. 2), pp. 315–331.
Zabala-Iturriagagoitia, Jon M., Voigt, Peter, Gutiérrez-Gracia, Antonio, & Jiménez-Sáez, Fernando. 2007. Regional Innovation Systems: How to Assess Performance. Regional Studies, Vol. 41(5), pp. 661–672.