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An analysis of the efficiency of public spending and national policies in the area of R&D

Author

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  • Conte, Andrea
  • Schweizer, Philip
  • Dierx, Adriaan
  • Ilzkovitz, Fabienne

Abstract

Improving the quality of public finances is a major challenge for European policy makers. The economic crisis has increased budgetary pressures and accentuated the tension between the need to sustain public spending aimed at raising the EU growth potential and the increased scarcity of public resources. Rising the efficiency and effectiveness of public spending in growth-enhancing areas such as education, R&D and innovation has become, therefore, even more important. This paper reviews the innovation performance of the different EU Member States and provides estimates of the relative efficiency of their R&D spending. In doing so, it aims at moving the policy discussion from mere volume-based policy targets towards a better assessment of the quality and effects of public R&D spending. The main contribution of this paper is therefore the identification of both (1) a suitable methodology for the evaluation of efficiency levels across Member States and (2) structural and policy determinants which may contribute to raise efficiency levels of R&D spending across countries and over time. Results indicate that there exist large cross-country differences in terms of measured efficiency, which is an indication that in many Member States there remains a significant potential for further improvement. Currently, there appears to be a divide in efficiency levels between old and new Member States. However, there is some evidence that the new Member States are catching up. The estimated efficiency scores indicate that all EU Member States have improved their efficiency levels over time. There is evidence that the efficiency of R&D spending is higher in countries with a strong knowledge base which, in turn, implies that increases in R&D spending do not necessarily lead to reductions in efficiency levels. Other factors that positively affect efficiency levels include the high-tech specialisation of the economy, the level of investment in education, the employment share in science and technology, and the degree of protection of intellectual property rights. Finally, a R&D tax treatment more oriented towards fiscal incentives rather than direct subsidies appears to have a positive effect on the efficiency level of R&D spending across EU Member States. This work is based on both a quantitative measurement of efficiency levels and a qualitative analysis of the policy instruments used in the Member States to promote R&D efficiency and effectiveness. Efficiency scores are calculated by means of the Stochastic Frontier Analysis for a set of input and output indicators in order to overcome the limitations associated with each individual indicator. A complementary survey of national governments highlights some further policy instruments that could contribute to increase the efficiency of R&D and innovation policies, in particular at the national level. The results of the survey argue in favour of adopting a systemic approach to R&D, education and innovation policies, including three main elements: (i) adapting educational programmes and the research infrastructure to the needs of science and industry; (ii) making a sustained commitment to knowledge investment by adopting medium-term funding programmes; and (iii) evaluating existing R&D programmes in order to determine which policy tools are the most effective and in which areas R&D investments offer the highest returns. More recently, Member States have introduced R&D spending measures specifically targeted to deal with the consequences of the economic crisis. A closer look at these measures reveals that Member States consider direct grants and offers of tax relief as appropriate instruments to counteract the effects of the crisis. It should be clear that such policy measures should be tailored to the specific needs and strengths of every Member State.

Suggested Citation

  • Conte, Andrea & Schweizer, Philip & Dierx, Adriaan & Ilzkovitz, Fabienne, 2009. "An analysis of the efficiency of public spending and national policies in the area of R&D," MPRA Paper 23549, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:23549
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    File URL: https://mpra.ub.uni-muenchen.de/23549/1/MPRA_paper_23549.pdf
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    References listed on IDEAS

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    7. Jon Zabala-Iturriagagoitia & Peter Voigt & Antonio Gutierrez-Gracia & Fernando Jimenez-Saez, 2007. "Regional Innovation Systems: How to Assess Performance," Regional Studies, Taylor & Francis Journals, vol. 41(5), pages 661-672.
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    Cited by:

    1. repec:gam:jeners:v:10:y:2017:i:12:p:2131-:d:122976 is not listed on IDEAS
    2. Kamilia Loukil, 2016. "Innovation Policy and R&D Efficiency in Emerging Countries: a Stochastic Frontier Analysis," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 2(3), pages 165-192.
    3. Svetlana Balashova & Vladimir Matyushok, 2012. "The Impact of Public R&D Expenditure on Business R&D: Russia and OECD Countries," Book Chapters, Institute of Economic Sciences.
    4. Cristiano Antonelli & Francesco Crespi, 2012. "Matthew Effects And R&D Subsidies: Knowledge Cumulability In High-Tech And Low-Tech Industries," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 71(1), pages 5-31, October.
    5. Kelchtermans Stijn & Zacharewicz Thomas, 2016. "RIO Country Report 2015: Belgium," JRC Working Papers JRC101167, Joint Research Centre (Seville site).
    6. Ghignoni, Emanuela & Verashchagina, Alina, 2014. "Educational qualifications mismatch in Europe. Is it demand or supply driven?," Journal of Comparative Economics, Elsevier, vol. 42(3), pages 670-692.
    7. Lee, Sang-Ho & Muminov, Timur K. & Tomaru, Yoshihiro, 2017. "Partial Privatization And Subsidization In A Mixed Duopoly: R&D Versus Output Subsidies," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 58(2), pages 163-177, December.
    8. Iryna Sikora, 2015. "Creative Production and Exchange of Ideas," 2015 Papers psi700, Job Market Papers.
    9. Lee, Sang-Ho & Muminov, Timur, 2017. "R&D Output Sharing in a Mixed Duopoly and Incentive Subsidy Policy," MPRA Paper 81732, University Library of Munich, Germany.
    10. Andrea Conte, 2013. "Determinants of policy reforms in the fields of R&D, education and innovation: EU-27 evidence during the Lisbon Decade," Chapters,in: Governance, Regulation and Innovation, chapter 5, pages 122-146 Edward Elgar Publishing.
    11. Balashova, Svetlana, 2015. "The impact of public R&D policy on business-funded R&D (case of OECD countries)," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 64-82.
    12. repec:exl:25engi:v:28:y:2017:i:3:p:240-252 is not listed on IDEAS
    13. Irena Szarowsk√°, 2016. "Quality of Public Finance and Economic Growth in the Czech Republic," Working Papers 0030, Silesian University, School of Business Administration.

    More about this item

    Keywords

    Public Finance; Efficiency; R&D spending; patents; innovation policy.;

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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