Transcript R&D elasticity of output

Measuring Innovation
Performance in
Developing Countries
Reinhilde Veugelers
KULeuven, EC (BEPA) & CEPR
Optimal R&D intensity to maximize
output?

From an extended Cobb-Douglas
production function, the optimal R&D/GDP
ratio depends on
 Purchase
price of R&D
 R&D elasticity of output
 Risk-free interest rate
 Rate of R&D depreciation
Actual R&D to GDP ratio:
Wide variation in levels across countries,
even in EU
 Variation in growth rates across countries,
even in EU

No clear sign of convergence, even in EU
??? Common target of 3% ???
Zooming in on the
country differences
in R&D/GDP
Variation in R&D elasticity of output
The sectoral dimension:
high-tech sectors (ICT..)with higher returns (higher opportunity,
measurement issues)
Comparison of EU-US difference in R&D
spending and Productivity Growth (US=1)
EU-US Gap in
R&D Spending
1991-1995 19961999
EU-US Gap in
Specialization
(VA)
19911995
19962000
EU-US Gap in
Productivity
Growth Rates
19911995
19962000
Total High
Technology
Manufacturin
g
0.67
0.62
0.825
0.826
0.48
0.41
(ICT)
0.55
0.41
0.45
0.42
0.23
0.27
(Non-ICT)
0.78
0.81
0.98
1.01
1.15
2.81
Source : ECFIN, Annual Review 2004
Linking R&D intensity and
Productivity Growth

Divergence bt countries in productivity growth
can be related to
 Higher
R&D intensity in most sectors
 Larger weight of R&D intensive sectors
 Better growth performance in R&D sectors

Country divergence in R&D/innovation output
Beyond R&D: Innovation: Creation and diffusion
(European Innovation Scoreboard Indicators)
1. Human resources
S&E graduates, Population with tertiary education, Participation in life-long
learning, Employment in medium-high and high-tech manufacturing,
Employment in high-tech services )
2. Knowledge creation
Public R&D expenditures (GERD - BERD) (% of GDP) BERD) (% of GDP
(by source of funding), EPO&USPTO high-tech patent applications;
EPO&USPTO patent applications
3. Transmission and application of knowledge
SMEs innovating in-house, SMEs involved in innovation co-operation,
Innovation expenditures
4. Innovation finance, output and markets
Share of high-tech venture capital investment, Share of early stage venture
capital in GDP, SMEs sales of 'new to market' products, SMEs sales of
'new to the firm but not new to the market' products, Internet
access/use, ICT expenditures, share of manufacturing value-added in
high-tech sectors, volatility-rates of SMEs, TBP, High tech importsexports
Differences in Country Dispersion
between R&D and Innovation
Country heterogeneity in growth:
catching up?

The policy perspective:
How to improve innovative capacity?
creation and diffusion
Beyond stimulating R&D investments

Improving Technology Transfer/Diffusion ( Eg ISL
mechanisms, absorptive capacity of users, investment in
complementary assets)


Networking Among Actors on a Global Scale:
research, firms, finance, policy makers,…
Framework conditions, especially
 clear
IPR regimes and standards;
 flexibility in product markets (easy of entry), labour markets
(labour mobility),venture capital markets
This requires a Systemic Policy Approach
To feed systemic policy approach:
A call on theory, data, econometrics:
The right variables at the right level?

What are the driving forces for innovative capacity? Do we
have data on this


Esp diffusion capacity variables
Which country ideosyncracies matter to explain differences in


Levels of driving forces
Effects of driving forces

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

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Sectoral composition
Time dimension (eg initial levels, catching up
Firm composition
Institutional setting…
Policy environment
Systems approach: interactions