Innovation expenditures efficiency in Central and Eastern European Countries

The purpose of this study is to verify whether the money spend on R&D are used efficiently in CEE countries. Nowadays, innovativeness is one of the most crucial factors accelerating economic growth. Increasing innovativeness is particularly important for developing countries, where policymakers are implementing various innovation strategies. The Europe 2020 strategy sets the target of 3% GDP for R&D spending. Many studies emphasize a significant effect of increasing expenditures on R&D on economic growth, but an efficiency aspect has not been covered in the literature. The article is based on critical review of the main literature of the subject and own empirical studies. The statistical data is sourced from the main international statistics. Calculations were performed using DEA methodology. DEA methodology allows assessing input-output efficiency. Inputs indicator is the annual public and private spending on R&D (as % GDP). There are nine output indicators, which represent available innovative statistics about number of patents, high-tech production etc. Number of variables was reduced for each period using correlation coefficient analysis, which allowed identifying the significant variables with least loss of information. The efficiency is calculated as the ratio of the weighted sum of the outputs by the weighted sum of inputs. The calculations are carried out based on the Excel spreadsheet and DEAFrontier. The paper gives a general review of the innovation level in CEE countries compared to other EU members which are spending less than 2% of GDP on R&D. The analysis shows that among CEE countries, the closest to efficiency frontier are Romania and Slovakia. Hypothesis that increasing spending on innovations is not causing proportional effects has been confirmed for CEE region, but not for western economies, which are spending on R&D more effectively. Main conclusion of the research is that innovation spending should be increased gradually in aim to achieve optimal results. This research may contribute to discussion on innovation policy design, and can be used by policy makers to develop national innovation strategies.