1 economic impact of an increase in r&d intensity in europe - recent findings from ipts work...

1

Economic impact of an increase in R&D intensity in Europe- Recent findings from IPTS work

Patrice LagetDG JRC-IPTS

http://www.jrc.es/home/index.htm

STOA Panel MeetingStrasbourg, 07/09/06

2

The impact of the 3% The impact of the 3%

• A brief overview of the modelling approach.

What if?

• A focus on the necessary changes, for the governments and for the industry, that may lead to more funding of R&D.

How to?

3

The works of the SERA unitThe works of the SERA unit

• One objective

To support the implementation of the ERA

• Four actions

ERAWATCH

Industrial R&I

Human Resources

Foresight

4

The econometric modelsThe econometric models

• In a simulation study undertaken for DG RTD by the ERASME team, using an adapted version of the NEMESIS model, attaining the 3% of GDP objective was estimated to have a significant impact on long-term growth and employment.

• On average, it would raise GDP by 0.5% per year after 2010. (Results presented in Investing in research: an action plan for Europe, COM (2003) 226 final).

5


• The Dutch CPB (Netherlands Bureau for Economic Policy Analysis), in a study for DG Enterprise, used the WORLDSCAN general equilibrium model to simulate the impact of different parts of the Lisbon strategy.

• In 2025 the increase in GDP resulting from raising R&D expenditures in Europe to 3% of GDP by 2010 and maintaining this level thereafter would be in the range of 3.5 to 11.6%.

6


• JRC-IPTS has recently initiated an exercise comparing the results of a wider set of models, including QUEST (DG ECFIN), the E3ME (Cambridge Econometrics) and GreenMod (ULB/ECOMOD).

• The first results for the impact on GDP are within the same ballpark. More importantly, they vary with properties built into the model: to what extent will productivity gains as a result of R&D lead to a reduction of prices and to what extent will they feed into higher wages per hour?

7


• How many jobs this will generate is unclear. Earlier work of IPTS for the Committee on Employment and Social Affairs of the European Parliament suggests that technological improvements do not harm employment in the long run and could rather lead to an increase in the number of jobs.

8


• However, most empirical evidence would suggest that overall employment levels in a country in the long term are not much affected by the level of investment in R&D. What it does change, however, is the skills that are needed. This is why support to R&D is accompanied by employment rate and participation targets in the Lisbon strategy

9

The way towards the 3% targetThe way towards the 3% target

• Is this a supply side or a demand side issue?

• The answer depends of the sector.

• For public R&D, governments, which are the main providers of funds, can do more. But they can also change the framework conditions.

• For private R&D, the market is the main driver of investments but a right policy mix can help.

10

The Booz Allen Hamilton Global Innovation 1000The Booz Allen Hamilton Global Innovation 1000

Is there a correlation between more R&D funding and better business performance?

Several of the top innovating companies have relatively low R&D intensities and some top R&D investors do not enjoy consistent business performance differences with companies that spend less on R&D

Evidence indicates that individual companies lose competitiveness as long as they invest below the sector average, but it is not certain that there are always positive returns for any funding above sector average, especially in the short-term.

The question is rather in which companies (size, their present level of competitiveness) and in which sectors should private R&D grow.

11

A new policy discourseA new policy discourse

• The Aho report: the best way towards an Innovative Europe is to create a market which provides firms with the incentive to become more research intensive.

• The Commissioner’s speech at the Centre for European Reform: “If we could propel market demand for new technologies that meet economic opportunities and societal needs, we would go a long way towards reaching the 3% objective.”

12

The EU, the US and JapanThe EU, the US and Japan

Government funding in millions € 2003

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

eu us jp

pnp

hes

gov

bes

Expenditures in millions € 2003

0

50000

100000

150000

200000

250000

300000

eu us jp

pnp

hes

gov

bes

13

The weight of defence R&DThe weight of defence R&D

Government budget allocations for defence and civil R&D in 2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EU25 US Japan

Source: Eurostat and OECD

Defense R&D

Civil R&D

14

Industrial R&DIndustrial R&D

• The 2005 EU industrial R&D investment Scoreboard clearly shows that: The lower R&D intensity in the EU reflects its industrial mix.

Top global EU firms are doing well.

The stock of EU enterprises with medium level of R&D investment is the real issue.

• It reveals the distribution of industrial R&D by sector, level of investment and localisation of headquarters in the EU.

• Internet web site where the complete document could be found: http://iri.jrc.es

http://iri.jrc.es/

targagr

15


Companies above €35 millions of R&D investmentCompanies above €35 millions of R&D investment

Europe North America world# R&D b€ sales b€ R&D/sales # R&D b€ sales b€ R&D/sales R&D/sales

278 108 3.184 3,4% 412 120 2.626 4,6% average

IT hardware 19 12 83 14% 117 32 319 10% 9%Pharma & biotech 34 24 154 15% 64 27 168 16% 15%Software & computer services 15 2 19 12% 62 17 156 11% 11%

Aerospace & defence 13 8 87 9% 10 4 150 3% 5%Automobiles & parts 21 25 539 5% 16 14 385 4% 4%Chemicals 22 8 173 4% 23 4 125 3% 4%Electronic & Electrical 20 10 175 6% 19 2 51 5% 6%Engineering & machinery 34 4 166 3% 17 3 109 2% 3%Health 15 2 33 5% 20 5 58 8% 7%

Other sectors 85 15 1755 1% 64 13 1103 1%

16


Top fifty companiesTop fifty companies

Europe North America # R&D b€ sales b€ R&D/sales # R&D b€ sales b€ R&D/sales50 83 1.414 5,9% 50 79 1.409 5,6%

IT hardware 5 10 70 14% 15 20 192 11%Pharma & biotech 11 21 139 15% 9 21 143 15%Software & computer services 1 1 8 14% 5 11 114 10%

Aerospace & defence 5 7 69 9% 3 3 84 3%Automobiles & parts 11 24 512 5% 4 12 303 4%Chemicals 5 5 93 6% 2 2 50 3%Electronic & Electrical 4 9 131 7% 1 1 5 13%Engineering & machinery 1 1 23 4% 2 1 35 3%Health 2 2 22 9%

Other sectors 7 5 369 1% 7 7 462 1%

17


Geographical distribution of the Scoreboard

Germany 37%

France 19% UK 17%

The Netherlands 7%

Sweden 6%

Italy 4% Finland 5% Spain 1%

Belgium 1% Denmark 2%

Austria 0%

Other countries 1%

18


Comparison of investments and expendituresComparison of investments and expenditures

Country BERD (120 billions) Scoreboard (102 billions)

Germany 31% 37%

France 18% 19%

United Kingdom 16% 17%

Sweden 6% 6%

Italy 6% 4%

Netherlands 4% 7%

Spain 4% 1%

Austria 3% 0%

Belgium 3% 1%

Finland 3% 5%

Denmark 3% 2%

Other countries 3% 1%

19

Industrial R&DIndustrial R&DA tentative global picture for the EUA tentative global picture for the EU

EU BERD € 120 B

Governments & Framework Programme

EU Scoreboard Companies

€ 102 B

Affiliates outside the

EU

Public Research

Affiliates of non EU companies

€ 15 B

Other EU companies not

in the Scoreboard

€ 10 B

€ 76 B

€ 23 B

€ 14 B

€ 20 B

€ 3 B € 1 B

20


Trends in expenditures in industry EU 25

0

20000

40000

60000

80000

100000

120000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Million PPP constant


BERD

Manufacturing

Services

21


Researchers in the Business sector EU25

300000

350000

400000

450000

500000

550000

600000

1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: OECD

FTE

2,5

2,7

2,9

3,1

3,3

3,5

3,7

3,9

4,1

4,3

BusinessEnterpriseresearchers (FTE)

BusinessEnterpriseresearchers perthousand industrialemployment

22


Rapid changes in some key sectorsRapid changes in some key sectors

BERD in selected NACE sectors EU 25 1995-2004

0,0

2000,0

4000,0

6000,0

8000,0

10000,0

12000,0

14000,0

16000,0

18000,0

20000,0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004


Million €

Pharmaceuticals

Office machinery and computers

TV and communication equipment

Motor vehicles

Computer services

R&D services

23


Rapid changes in some Member StatesRapid changes in some Member States% of change 1995-2004 - EU15

0,0

100,0

200,0

300,0

400,0

500,0

600,0

700,0

at be de dk es fi fr gr ie it nl pt se uk

BERD

Manufacturing

Services

Source: IPTS, based on Eurostat and OECD

24


BERD by company size EU 25 2003

Between 250 and 499

7,8%

500 or more74,2%

Between 10 and 494,9%

Between 50 and 249

12,0%Between 1 and 91,1%

Source: Eurostat

25

Public researchPublic research

Funding sources for univ & pnp

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EU univ US univ US pnp

abr

pnp

hes

gov

bes

26


Distribution of government funding in the EUDistribution of government funding in the EU

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996 1997 1998 1999 2000 2001 2002 2003

pnp

hes

gov

bes

27


Public R&D expenditure in the EU 25

0

10000

20000

30000

40000

50000

60000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: Eurostat

Million PPS 1995 constant prices

Government sector

Higher education sector

Public expenditure

28


The paradox of technology transferThe paradox of technology transfer

• The real meaning of the US Bayh-Dole Act

– University as broker of exclusive rights to the industry

• Are European universities underperforming?

– Not necessarily if we look beyond official data.

• Thus, two different approaches but quite similar results

29

Concluding MessagesConcluding Messages

• More R&D spending has a positive effect, but at current pace the EU will never get to 3%

• But, improving the efficiency of the existing framework is important as well

• For industry the market remains the main driver and the right policy mix can influence it

30

Concluding MessagesConcluding Messages

• For universities autonomy and new modes of governance are the next frontier

• The dynamics of technology transfer needs to be better understood

• A response to the globalisation of industrial R&D is excellence in academic research

31

Thank you for your interest !

1 economic impact of an increase in r&d intensity in europe - recent findings from ipts work...

Documents

rd funding

rd investors

rd intensity

rd expenditures

private rd

public rd

lisbon strategy slide

result of rd lead