Transcript How can innovation policy help economic recovery?

Innovation Policy
and Economic Recovery
How innovation policy can help Croatia to reach
and sustain higher rates of economic growth
Paulo Correa, World Bank
VIII Knowledge Economy Forum
Insead, Fontainebleau, France
April 28 –May 1, 2009
Croatia’s economic convergence
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Raising living standards and
among the best social
indicators in the region
Output per capita relative to the US and EU
Yet, growth trajectory was not
necessarily sustainable
From a growth pattern based
on investments (particularly
housing) and domestic
consumption towards a pattern
based on
productivity/innovation and
exports
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The impact of the global crisis
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Holding the process of Croatia’s
convergence: recession/ growth
decelearation
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Companies postpone investments
in modernization (productivty) and
innovation
Finance unavailable or too
expensive; unclear returns (higher
uncertainty)
Less public support: fiscal
adjustment  reduction of public
support to R&D in Croatia
Stimulus packages elsewhere not
always take innovation and R&D
into consideration
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Reduction R&D expenditures
elsewhere  lower spill-over
effects
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Adoption of short-term measures
that affect long-term growth
potential
Small differences in growth rates
over a long period translate into
big difference in the level of living
standards:
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Following recent growth trends,
Croatia’s per capita income in 50 years
would correspond to 60 percent the
U.S. level
Alternatively, Croatia could reach the
same outcome in less than one-third of
the time by raising its growth rates by
1-1.5 percentage points and sustaining
such rates for a bit more than a
decade.
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Why innovation policy now?
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Unleashing Croatia’s untapped knowledge resources is
an opportunity
The use of untapped knowledge resources would raise
innovation and productivity in the economy
Smoothing the impact of the crisis and better
positioning Croatia for the upturn
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R&D investments allow the introduction of new/better
products and processes in the market
Start up companies (knowledge based), higher efficiency
Higher competition, exit of less efficient firms and
concentration of production in more efficient firms
(Schumpeterian competition), ultimately the engine of growth
in market economies
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The Impact of R&D Expenditures is High
A static general equilibrium approach – World Scan simulation:
Effects of the five Lisbon targets in 2025
Employment
Human
capital
Services
Administrativ
e burden
R&D
Total
(1)
(2)
(3)
(4)
(5)
(6)
Croatia
15.7
0.3
0.8
2.4
5.8
26.7
Poland
15.6
0.4
0.4
2.0
5.4
25.2
Czech
Republic
5.5
0.1
1.5
1.7
4.9
14.3
Romania
11.0
0.7
0.3
1.7
11.7
27.2
EU-27
6.3
0.4
0.1
1.5
4.5
13.3
GDP
Source: WorldScan simulations.
Note: The numbers in columns (2)-(5) are relative changes from the policy simulations in the previous column in the year 2025. In column (1)
and (6) the numbers are relative changes from the baseline.
Increasing R&D from 1.2 to 3.0 percent would raise Croatian GDP by 6.0 percent in 2025 and by 8.2
percent in 2040
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Technology diffusion is relatively advanced and
their impact on firm productivity is also high
An increase of 10 percent
in the share of workforce
using computer in Croatia
would be associated to an
increase in productivity in the
rage of 5 -6 percent
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% Worker Use Computer, Country Comparison
44.3
Croatia 2007
33.3
China2003
Montenegro2003
30.3
Serbia2003
24.4
22.6
SouthAfrica2003
21.0
Cambodia2003
Brazil2003
17.5
India2002
17.0
0.0
70.0
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The untapped innovation resources
Little innovation and slow catch up
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Which policies?
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Raising total and business investment in
R&D
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Total R&D expenditure is growing but its productivity
(patents/R&D) is comparatively low
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Still low R&D as share of GDP
Low share of business R&D in total R&D
Euro 1.6 Million additional funding for RAZUM program, a soft
loan for financing private R&D
Simplification of SPREAD program, a matching-grant for the
collaboration between local research institutes and SMEs
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Which policies?
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Enabling the commercialization of publicly
funded research
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Inadequate incentives for applied R&D and
commercialization of results from publicly-funded research
(universities and RDIs)
Three technology transfer offices established (Rudjer
Boskovic Institute; University of Zagreb and University of
Rijeka)
Technology-parks: University of Rijeka and (possibly) Zagreb
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Which policies?
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Start-up of knowledge- based companies:
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Rudjer Medicol Cyclotron; and Rudjer Medicol Diagnostics
a spill-overs of RBI’s
Initium Futuri – a company founded by four
undergraduates from the Faculty of Organization
and Informatics (University of Zagreb) to provide
innovative ICT solutions in tele-medicine.
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Funding of EUR 154.000 provided by RI has enabled
establishing a spin-off company, secure intellectual
property rights and finance part of the initial
operational costs.
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Which policies?
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Mitigating the scarcity of human resources for
R&D
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Croatia’s share of graduates in science and
technology programs (5.6%) is lower than most
countries in the region
The Unity through Knowledge Fund is linking
Croatia’s researches living abroad with local
scientists and the business sector (from Brain
Drain to Brain Circulation)
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Which policies?
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Enabling Croatia’s firm to adopt modern technologies:
The Nova Gradiska Techno-Center
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Training in CNC technology, metal processing and
measurement techniques
Business & Marketing services : Business counseling, planning
and development
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Engineering & Technology services for R&D-based companies
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Potentially serving 1,200 SMEs
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Innovation policy and economic recovery
Unleashing Croatia Innovative Potential
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The current agenda
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Raising R&D expenditures by encouraging private R&D
Enabling the absorption of human resources demanded for the research
and development sector
Facilitating the commercialization of research
Enabling the enterprise sector to further absorb technology, particularly
ICT
Some remaining challenges
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Eliminating regulatory bottlenecks for the development of a venture
capital industry
Fostering the restructuring of public R&D institutes by declining
earmarking funding
Researcher-level incentives for diversification of revenues
Consolidating a pro-entrepreneurship mindset among scientific
community and among graduate students
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In sum …
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Policy-makers should be concerned about policies and reforms
that will define the long-term growth prospects of the economy,
despite the global economic crisis
By unleashing Croatia’s innovative potential, an innovation
policy focused on raising business R&D and encouraging the
commercialization of publicly funded research could contribute for
the acceleration of economic growth
And thus better positioning Croatia for the upturn of the global
economy
Thank You !
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