Knowledge investments, business R&D and innovativeness of countries: A qualitative meta-analytic comparison

The relationship between knowledge investments, innovation and competitiveness is an important topic in both academic research and economic policy and has been studied extensively over the past decades. Nowadays, investments in private and public R&D are believed to make up the heart of a modern knowledge economy. The present paper adopts an evolutionary economics perspective and investigates whether, in addition to private R&D activities, also institutional support systems and policy interventions play a role in inducing innovation initiatives and creating impacts on the performance and competitiveness of industries. We aim to find support for the hypothesis that the competitiveness of industries in the international arena is sustained by the dynamic interaction between national, regional and sectoral innovation systems. This may provide stakeholders with a better understanding of the context in which they operate. Since according to the evolutionary metaphor, the growth of an innovation system follows complex dynamics that cannot simply be analysed within a static quantitative equilibrium framework, we use here an alternative approach based on qualitative pattern recognition analysis originating from artificial intelligence analysis. Besides R&D expenditures, human capital expenditures are regarded as the major input in the knowledge creation process in our analytical framework. To this end, in our paper a qualitative causal model that maps out conditional relations between key factors in national innovation systems will be described. The focus of our investigation is on systematic patterns in the competitiveness of the EU Member States, using statistical information on innovation input and output data from the European Innovation Scoreboard. In our analysis we find support for the hypothesis that there are indeed significant interactions between distinct institutional levels, which may provide guidance to the strategic orientation of nations and the European Union in terms of the emphasis on competitiveness vis-à-vis cohesion.     

Link between innovation and productivity in Canadian manufacturing industries

Empirical studies commonly use research and development (R&D) to measure innovation and often find, especially in Canada, no strong link between productivity and innovation. In this article, we model innovation as an unobservable latent variable that underlies four indicators: R&D, patents, technology adoption, and skills. We find that these indicators are reasonably good measures of innovation for aggregate manufacturing. However, except for skills, the reliability of the indicators for innovation differs among individual industries. Our innovation indexes, based on the latent variable model, show that most manufacturing industries became more innovative over the 1980–1997 period. The pace of innovation in the electrical and electronic products industry accelerated during the 1990s. In addition, we show that the new measure of innovation has a positive and statistically significant impact on productivity. It takes from 1 to 3 years, depending on the industry, for innovation to generate an impact on productivity.     

Revisiting measure of R&D spillovers: empirical evidence on OECD countries and industries

Using data for 17 Organisation for Economic Co-operation and Development (OECD) countries over 29 years for 28 industries, this paper estimates industry-wise research and development (R&D) spillovers from the largest R&D investors and the most R&D-intensive industries that contribute 80% of global R&D. In doing so, it tests several assumptions made in the literature, and data rejecting them, proposes a methodology on R&D return estimation devoid of these assumptions. Results show that R&D has substantial spillovers, justifying R&D support policy. Each dollar of R&D generates about 29 cents in spillovers domestically and 4 cents in foreign countries. However, both intra- and inter-industry spillovers vary by industries, implying that the policy of supporting each R&D dollar uniformly across industries is suboptimal. Contrary to industry heterogeneity, the R&D spillovers from an industry do not vary substantially across countries, suggesting that optimal R&D policy across OECD countries might be uniform. An industry-by-industry technology matrix shows that sometimes an idea generates a greater impact on other industries than where it is generated.     

Young leading innovators and the EU's R&D intensity gap

Europe's innovation gap relative to the USA is often attributed to its industrial structure in which new firms do not play a significant role, especially in high-tech sectors. This view of a structural European Union (EU) innovation deficit is popular in European innovation policy discussions, but has received little or no thorough empirical investigation. This article aims to address this ‘evidence gap’. Using industrial R&D Scoreboard data from leading world innovators, we find that compared to the USA, the EU has fewer young firms among its leading innovators. Using a decomposition analysis, we show that having fewer young firms accounts for about one-third of the EU–US differential in R&D intensity, while 55% of the differential is due to the fact that young leading innovators in the EU are less R&D intensive than their US counterparts. Further analysis shows that this is almost entirely due to a different sectoral composition. We thus confirm that the EU–US private R&D gap is indeed mostly a structural issue.     

Innovation and productivity in the food vs. the high-tech manufacturing sector

ABSTRACT

The food sector is considered a mature industry characterized by low research and development (R&D) intensity. Nevertheless, food companies face numerous challenges and cannot do without innovation activity if they want to keep their competitiveness. In this study, we examine the impact of innovation on labor productivity in European food companies and compare it to results for firms operating in high-tech sectors. The central motivation of our study is that the low R&D intensity observed in the food sector should be mirrored in different productivity effects of innovation when compared to the high-tech sector. We use microdata from the European Union's ‘Community Innovation Survey’ (CIS) and apply an endogeneity-robust multi-stage model that has been applied by various recent studies. Our results point out major differences between the examined subsectors. While we find strong positive effects of innovation on labor productivity for food firms, we find insignificant effects in the high-tech sector. This might suggest that the returns to innovation might be best evaluated separately by sector rather than for the manufacturing sector as a whole.     

Empirical research on the different innovation engine between China and US manufacturing using an improved method

Most studies arrive at controversial conclusions about the relationship between firm size and technological innovation. Industrial differences and subjective model design are generally considered the primary cause. In static comparisons across industries, dynamic industrial changes are ignored, but this might lead to differing results when attempting to identify the driving forces of evolutionary change in an industrial environment. This study applies nonparametric regression methods with an expansive industry grouping to overcome the industry-difference interference and empirical model error, typifying traditional studies. First, a comparative analysis of the forces driving US and Chinese manufacturing is performed. Results indicate that US and Chinese manufacturing are in different industrial growth stages. Chinese manufacturing takes the traditional elements and R&D input as its main driving factors, which require objectively, expansive scale of enterprise, therefore showing characteristic Schumpeterian innovation. US manufacturing is driven by both R&D and non-R&D inputs; so it can maintain continuous innovation through cooperative networks under conditions of constant or contracting firm size.     

Export,R&D and new products. a model and a test on European industries

In this article we extend the model developed by Bogliacino and Pianta (Industrial and Corporate Change 22 649, 2013, b) on the link between R&D, innovation and economic performance, considering the impact of innovation on export success. We develop a simultaneous three equation model in order to investigate the existence of a ‘virtuous circle’ between industries’ R&D, share of product innovators and export market shares. We investigate empirically – at the industry level – three key relationships affecting the dynamics of innovation and export performance: first, the capacity of firms to translate their R&D efforts in new products; second, the role of innovation as a determinant of export market shares; third, the export success as a driver of new R&D efforts. The model is tested for 38 manufacturing and service sectors of six European countries over three time periods, from 1995 to 2010. The model effectively accounts for the dynamics of R&D efforts, innovation and international performance of European industries. Moreover, important differences across countries emerge when we split our sample into a Northern group – Germany, the Netherlands and the United Kingdom – and a Southern group – France, Italy and Spain. We find that the ‘virtuous circle’ between innovation and competitiveness holds for Northern economies only, while Southern industries fail to translate innovation efforts into export success.     

Regulation and innovation: Examining outcomes in Chinese pollution control policy areas

In this paper, we examine how two regionally implemented environmental initiatives in China have impacted the innovation ability of Chinese-listed firms. The regional implementation of these policies, with non-policy regions serving as controls, offers researchers the perfect conditions for a natural experiment. Using research and development (R&D) expenditures and patents as a proxy for innovativeness, we compare the record of innovation of firms inside the policy zones with firms outside the policy zones. We use a Difference-In-Difference-In-Differences (DIDID) method to eliminate endogeneity and take the quality of the patents into account by incorporating sub-items. Results show only one of the regulations had a positive effect and that low quality patents account for most of the innovation. We conclude that reasonably designed environmental regulations, when implemented regionally in competitive industries, do improve Chinese firms' innovation ability in line with the Porter Hypothesis. The results help us derive some useful policy implications regarding innovation.     

Costs,knowledge and market structure: understanding the puzzle of international competitiveness with Greek export data

This is an analysis of the sources of international competitiveness with Greek export data for the period 1987–2007. The framework used in the study incorporates factors that do not only represent cost competitiveness but also shed light on the determinants of economic complexity. Economic complexity is the amount of knowledge capabilities embodied in exports that indicates – as a source of comparative advantage – the ability for product differentiation and product variety. The empirical analysis shows that industries benefit substantially from their own R&D activity but, owing to weak economic complexity in the country, there are no cross-industry knowledge spillovers (both at national and international level) that can benefit export activity. Greek exports were found to be sensitive to relative unit labour costs (RULC) but the most important export component of this index is relative labour productivity and not labour cost. Not all institutional arrangements have the same impact on exports, for example high trade union density might harm competitiveness but this factor is uncorrelated with R&D investment. In the view of these findings, Greece’s route to international competitiveness should be primarily by improving its economic complexity, making sure that the country specialises in productive activities that enrich its knowledge capabilities as well as increase the potential of knowledge transfer.     

Research and development,productive structure and economic effects: Assessing the role of public financing in Brazil

Investments in research and development (R&D) have played a key role in promoting productivity improvements and economic growth. This paper explores the economics effects of public R&D investment funding in Brazil, taking into account the changes in total factor productivity (TFP) in high-, medium- and low-technology sectors. Public funding plays an important role in the development of R&D activities in Brazil and its participation has increased since 2010. Our paper simulates a withdrawal of R&D investments and TFP linked to public financing from an R&D-based computable general equilibrium (CGE) model, which recognizes the stock-flow relation between R&D investment and knowledge capital. Without public R&D investment funding, the main findings indicate losses in TFP, adverse effects on the formation of physical capital, shrinkage of more intensive R&D industries, and more future dependence on the public sector for knowledge stock, especially for education.     

FROM DIRECT SUPPORT OF BUSINESS SECTOR R&D/INNOVATION TO TARGETING VENTURE CAPITAL/PRIVATE EQUITY: A CATCHING-UP INNOVATION AND TECHNOLOGY POLICY LIFE CYCLE PERSPECTIVE

The paper presents a generic, three-phase innovation and technology policy (ITP) model which, in a number of contexts, could lead to the successful rise of venture capital (VC) or related equity-based support and finance systems for innovative SMEs both in high- and non-high-tech sectors. There has been increasing recognition that such systems could facilitate country attempts at latching into the ICT revolution, catching-up and deepening of R&D/Innovation; and for facilitating the transition to a knowledge/learning economy. Whereas the model is inspired by the successful Israeli experience during the 1969–2000 period, the other examples referred to in the paper suggest that it is adaptable to other contexts as well. A critical analytical point is whether, in the wake of direct government support of business sector (BS) R&D/Innovation (Phase 1), conditions will emerge for the successful emergence of VC or related industries in Phase 3 (and, whenever necessary, for the successful policy targeting of such industries). These are termed Phase 2 conditions; and the paper refers to three Phase 2 profiles: the Israeli profile; the Chilean profile; and a third ‘strategic’ profile, which seems to have been adopted by Korea. The analysis strongly suggests that a multiphase ITP model could be an important analytical tool both for policy analysis and for policy making. Over and beyond its emphasis on the dynamic links between direct Government support of BS R&D/innovation and subsequent policies directed to VC, the paper also shows that policy could be subject to increasing rather than to decreasing returns.     

Innovation and productivity in manufacturing and service firms in Catalonia: a regional approach

This article analyses the determinants of research and development (R&D) and the role of innovation on labour productivity in Catalan firms. Our empirical analysis found a considerable heterogeneity in firm performances between the manufacturing and service industries and between low- and high-tech industries. The frontiers that separate manufacturing and service industries are increasingly blurred. In Catalonia high-tech knowledge-intensive services (KIS) play a strategic role in promoting innovation in both manufacturing and service industries, and driving growth throughout the regional economy. Empirical results show new firms created during the period 2002–2004 that have a greater R&D intensity than incumbent firms (54.1% in high-tech manufacturing industries and 68.8% in high-tech KIS). Small and young firms in the high-tech KIS sector are very prone to carrying out R&D and they invest more in innovation projects. R&D expenditures, output innovation, investment in physical capital, market share and export have positive effects on labour productivity in both the manufacturing and service sectors. Firm size, on the other hand, has a positive effect on productivity in manufacturing industries but not in services.     

Innovation policy in China: nationally promulgated but locally implemented

In China, policies are often announced at the national level but implemented locally. Innovation policies are no exceptions. This article studies China’s 50% R&D tax deduction policy, a key innovation policy promulgated by the central government in 2006. We find that the degree to which the policy was implemented during the period of 2006–2009 varied across the provinces and industries, which in turn had significant impacts on local firms’ innovation output. The findings of the heterogeneity in local implementation of national innovation policies are of important implications for both policy makers and innovation scholars.     

Merger policy in innovative industries

We analyze optimal merger policy in R&D-intensive industries with product innovation aiming to improve the quality of products. Our results suggest that a permissive merger policy is rarely optimal in high-tech industries when the antitrust authority considers a welfare standard that balances the impact of mergers on consumers’ surplus and firms’ profits. In particular, relative to a benchmark where the effects from R&D are absent, we show that the optimal merger policy should not be substantially more permissive in the presence of those effects from R&D.     

Accounting for the recent surge in U.S. patenting: changes in R&D expenditures,patent yields,and the high tech sector

We decompose the recent patent increase into components representing (1) an increase in resources made available to research and development, (2) an across-the-board rise in the patent yield of an R&D dollar, and (3) changes in the patent yield in individual industries. Two high tech fields, computer hardware and pharmaceuticals, account for 22 percent of the patent increase. While these two industries had the fastest R&D growth among the industries we study, the pharmaceutical industry experienced a decline in its patent yield, limiting its patent growth. We show that increased R&D spending accounts for 70 percent of the patent increase. We discuss our results in the context of alternative hypotheses of the patent surge. We also compare our results to the anecdotal evidence of firm R&D performance at the industry level.     

Low-cost innovation and technology-driven innovation in China’s machinery industry

ABSTRACT

The political concept of indigenous innovation in China sets out a guiding principle for the country’s major transformation towards becoming an innovation nation. However, firms’ innovation strategies and capabilities in middle-income countries are usually heterogeneous, making a uniform response to this concept at the company level highly unlikely. The paper’s empirical contribution is based on analysing survey data on technologically advanced machinery firms in China. It uses a multinomial model approach to establish which drivers of innovation go hand-in-hand with the different innovation strategies. This paper identifies different innovation strategies and forms of innovation that co-emerge as part of this transformation, leading to four firm groups: low-cost producers, technology-oriented producers, user-oriented innovators and technology-oriented innovators. It thus contributes to a more differentiated view of the effects of China’s innovation-focused transformation. We find that R&D investments, governmental R&D support and scientific collaborations are key factors to distinguish between the above-mentioned groups.     

Research and development and trade policies for product innovation in the presence of foreign competition

This paper examines two policy instruments — a matching grant and import tariffs — for encouraging research and development (R&D) in product innovation by a domestic firm when it faces foreign competition. We do so by developing a theoretical model of product innovation where R&D effort is endogenous and its outcome uncertain. We examine the effects of a reduction in import tariffs on private expenditure on R&D, on public support for such R&D, and on total R&D expenditure. We find that in response to a reduction in import tariffs, the domestic firm always reduces its private R&D investments, but the total level of R&D expenditure (i.e., including public support) might go up depending on the level of tariffs. In particular, we find that it will go up if the initial level of tariff is higher than a critical level. When tariff is endogenous, we find that the socially optimal level of tariffs is positive. One finding that is of particular interest is that supporting private attempts to product innovate in the form of a matching grant program leads to a socially optimal level of product R&D.     

On the impact of innovation and inequality in economic growth

We present robust results on the empirical relationship among income inequality, innovation, and economic growth for a panel dataset of 74 countries over the period 1996–2014. We estimate pairwise causality tests to show that there is bidirectional causality between GDP per capita and R&D, while R&D causes the Gini index of income inequality, and it causes human capital. Allowing coefficients to be different across cross-sections of countries, we get in any case a pairwise bi-directionality. By dynamic panel data estimations, when regressing R&D on GDP per capita, we obtain a threshold value of 0.16% of R&D such that for values above it there is economic growth. While regressing R&D on the Gini index, we get a threshold of 0.10% of R&D above which, the income distribution begins to improve. Finally, we estimate a growth equation that depends on R&D, income inequality, and physical capital. We obtain two thresholds, one of 38.79 for the Gini (above which the economic growth decreases), and one of 0.06% for R&D such that above it, economic growth is rising.     

A Framework for Policy Oriented Innovation Studies in Industrialising Countries

This paper argues that there is increasing need for the integration of policy considerations in the formulation of research questions and in the development of analytical work in policy oriented innovation studies. Despite the fact that Evolutionary and Innovation Studies theories have offered new ways of incorporating policy, little explicitness in this regard has yet been achieved and there is a risk that academic research following the new perspectives will be of little relevance for policy. Rather than a ‘linear process’ starting with empirical research aimed at linking competitiveness and economic performance to technological capabilities (in a comparative perspective and aimed at identifying ‘best practice’) followed by very abstract and un-grounded ‘policy implications' - a new type of link between positive and normative economics in the field is required. Our approach suggests a new structure for policy-oriented and policy-relevant research, i.e. the integration of research on technological change and industrial transformation with research on policy and the development of a conceptual framework for the design and implementation of innovation policies.     

Market failure vs. system failure as a rationale for economic policy? A critique from an evolutionary perspective

This paper reconsiders the explanation of economic policy from an evolutionary economics perspective. It contrasts the neoclassical equilibrium notions of market and government failure with the dominant evolutionary neo-Schumpeterian and Austrian-Hayekian perceptions. Based on this comparison, the paper criticizes the fact that neoclassical reasoning still prevails in non-equilibrium evolutionary economics when economic policy issues are examined. This is more than surprising, since proponents of evolutionary economics usually view their approach as incompatible with its neoclassical counterpart. In addition, it is shown that this “fallacy of failure thinking” even finds its continuation in the alternative concept of “system failure” with which some evolutionary economists try to explain and legitimate policy interventions in local, regional or national innovation systems. The paper argues that in order to prevent the otherwise fruitful and more realistic evolutionary approach from undermining its own criticism of neoclassical economics and to create a consistent as well as objective evolutionary policy framework, it is necessary to eliminate the equilibrium spirit. Finally, the paper delivers an alternative evolutionary explanation of economic policy which is able to overcome the theory-immanent contradiction of the hitherto evolutionary view on this subject.