IPTS Working Papers on Corporate R&D and Innovation

Authors: Pietro Moncada-Paternó-Castello and Peter Voigt

The paper investigates how sector composition and magnitude of R&D investments in the EU may differ in year 2020 if top R&D-investing SMEs were assumed to be on a fast growth track while the top R&D-investing large companies continued to grow as before. Background is the emerging focus on SMEs - and in particular the fast growing among them - with regard to the "Europe 2020" policy strategy.

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Authors: Francesco Bogliacino, Mariacristina Piva, Marco Vivarelli

The objective of this paper is to assess the job creation effect of R&D expenditures, using a unique longitudinal database of 677 European companies over the period 1990-2008. A dynamic labour demand specification using a Least Squares Dummy Variable Corrected (LSDVC) technique is estimated.
The labour-friendly nature of R&D emerges from the empirical analysis on the overall sample. However, this positive significant effect corresponds to the high-tech sector and services, while the effect is not significant for traditional manufacturing. The results support the policy agenda of promoting structural change in European economies.

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Authors: Abraham García

This paper focuses on marketing expenditures and their relation with R&D investments and innovative sales. A higher investment in R&D is associated with the production of a higher quality or faster innovation, with a positive impact on sales and in a macro sense, an increase of GDP. This paper raises the issue that good innovation need a strong marketing effort in order for this innovation to have an impact on sales, it needs to be desired by consumers. This paper finds empirical evidence that marketing expenditures explain a lot of the success of the innovation 0.5 to 0.7%  (measured in terms of the elasticity of this effort to innovative sales), even more than the flow of investment in R&D(which counts for 0.3 %). In fact, the size of the coefficient for marketing doubles those found for R&D, a quite surprising result taking into consideration the little importance that marketing has in innovation studies. The paper uses Community Innovation Survey data, the third wave (CIS 3) and set up a system of simultaneous equations like in Crepon et al. (1998).

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Authors: Daria Ciriaci

The objective of this study is to provide an analysis of the importance of design – defined as the procedures, choice of elements and technical preparation to implement a new product – and R&D investments as drivers of European firms’ innovation performance. In doing so, it partly compensates for the lack of empirical evidence in the literature by using non-anonymised data from the third wave of the European CIS, and estimating a system of simultaneous equations to tackle the endogeneity inherent in these investment choices and the externalities associated with them. The robustness of results confirms the crucial role of design investment for innovation success in 23 European countries for both the manufacturing and service sectors and its role as a complement to technological R&D and as a driver for user-centred incremental (new-to-the-firm) and radical (new-to-the-market) innovations. In particular it found an increase of 1% expenditure increases innovation sales by between 0.34% and 0.49%, while the same increase in R&D investment increases innovation sales by between 0.64% and 0.86%. Interestingly, while investing in design shows no statistically different innovation output returns for small, medium-sized and large enterprises, this is not the case for R&D expenditures. The policy conclusions are clear: design is a less costly alternative to R&D for many SMEs and a policy of supporting design should be considered, as this might be a more cost-efficient support strategy.

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Authors: Abraham García

The effect of the EU Research Framework Programme (FP) on European company innovation performance is analysed for the period 1998-2000. The possibility of applying for the grant might make companies engage in new projects which they would not have considered if the fund was not there. In addition, the FP programme increases collaboration with other innovation agents (e.g., universities, research labs, governments and other firms). Both the existence of FP and collaboration are simultaneously modelled when innovation performance is studied. To measure innovation performance, an input indicator (level of R&D expenditure) is used in combination with an output indicator (increase in the innovation sales). Following Crepon et al. (1998) a simultaneous equations system is used with four equations (FP, collaboration, R&D and Innovation sales). The paper finds a positive impact for the FP on collaboration, and both factors positively affect the innovation performance (R&D and Innovation sales) of European firms. No crowding-out effect is found in the analysis.

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Author: Daria Ciriaci

This paper assesses whether European firms’ innovative performance is impacted by investments in training directly aimed at developing and/or introducing innovation, in addition to the scale of a firm's investments in innovation proxied by the number of R&D personnels. In particular, it explores the complementarity between these two factors (in the presence of a well-trained workforce, the knowledge created by a firm’s R&D personnel can be better exploited), and their dependence on a firm's knowledge intensity (high versus low % of tertiary-educated workforce) and size (SMEs versus large firms). Using European CIS non-anonymised data for the period 1998-2000, this paper estimates a system of simultaneous equations in which investments in training and stock of R&D personnel are treated as endogenous in relation to the innovative sales on which they are presumed to have an effect. The choice to use this time period rather than more recent ones – to which I had access at the Eurostat Safe Centre – is data-driven. It has better information on training expenditures and it is the last period to provide firm-level information on the number of employees with tertiary education. Unlike the majority of CIS-based studies, the main variables of interest are continuous ones, while dummy variables are used as controls only. Empirical evidence confirms most previous results – investment in training and stock of R&D personnel positively affects firms' innovativeness – but also provides some important additional insights. Ceteris paribus, returns to training and R&D personnel are not affected by the knowledge intensity of the firm, while are always statistically significantly higher in large than in small and medium sized firms. However, while in the case of training the differences in returns between SME and large firms are small, in the case of R&D personnel are quite pronounced.

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Authors: Francesco Bogliacino and Matteo Lucchese

Financial constraints for young and small firms can prevent them from supporting innovation and employment creation. We analyze two of the various institutional mechanisms which have been proposed to circumvent it: the development of venture capital market and the stock market access. We will use the information provided by two Scoreboards - used to monitor innovative activity in Europe: the Innovation Union Scoreboard and the R&D Scoreboard. With the first, we study the determinants of the venture capital/GDP intensity in Europe. With the second, we try to assess the contribution of stock market to R&D investment. In the first part, we show that venture capital market complements structural feature such as R&D intensity and market capitalization, is more volatile and seems not affected by anticompetitive regulations. In the second part, we show that unlisted SMEs are more research intensive.

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Authors: Francesco Bogliacino, Matteo Lucchese and Mario Pianta

The patterns and mechanisms of job creation in business services are investigated in this article by considering the role of innovation, demand, wages and the composition of employment by professional groups. A model is developed and an empirical test is carried out with parallel analyses on a group of selected business services, on other services and on manufacturing sectors, considering six major European countries over the period 1996-2007. Within technological activities, a distinction is made between those supporting either technological competitiveness, or cost competitiveness. Demand variables allow identifying the special role of intermediate demand. Job creation in business services appears to be driven by efforts to expand technological competitiveness and by the fast growing intermediate demand coming from other industries; conversely, process innovation leads to job losses and wage growth has a negative effect that is lower than in other industries. Business services show an increasingly polarised employment structure.

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Authors: Pietro Moncada-Paternò-Castello

Based on a thorough literature survey, this work builds a strong case for targeted policy interventions to support the growth of innovative companies. The analysis argue that such targeted support should take into consideration a combination of factors to define eligibility and identify types or groups of companies to be supported, such as: size, age, innovativeness, sector, business phase, country techno-economic characteristics and degree of internationalisation. Once identified relevant target groups, the specific support measures should be tailored accordingly. Finally, the paper claims that, to be effective, the design and implementation of measures, should be subject to systematic monitoring and analysis, including policy experimentation.

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Authors: Pietro Moncada-Paternò-Castello, Peter Voigt and Marco Vivarelli

This paper provides an overview of the evolution of globalised business R&D activities. An outline of business R&D investment trends is provided with quantitative information in the first part of the document. Then, in the light of recent empirical observations, the paper points out what are the drivers and the impacts - with a particular focus on the effects on competitiveness and employment - of the globalization of the business research. The possible policy implications from the main results of this work are presented in the last section of the document.

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Authors: Michele Cincera and Julien Ravet

This paper aims to assess the impact of both geographic and industrial diversification of economic activities on the productivity performance of large European R&D Multinational Enterprises (MNEs).

Based on the worldwide subsidiaries of these firms, we measure the performance of the firms according to their level of industrial diversification and globalisation that we proxy with the presence and importance of subsidiaries in the EU, North America and Asia-Pacific regions.

The sample consists of large R&D firms that represent about 80% of total European R&D. In general, the results indicate a positive impact from globalisation on firms’ R&D productivity, especially in the US, while a negative impact for industrial diversification is found

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Authors: Michele Cincera, Claudio Cozza, Alexander Tübke and Peter Voigt

This study investigates how corporate R&D evolves in the light of the contemporary economic crisis, using empirical evidence from past downturns, looking at the relevant literature and performing an empirical analysis of recent business survey data (collected during 2009).

Findings show that some companies have reduced their innovation activities significantly, while others maintained them and a third group even increased their activities to reap the benefits in the expected upswing afterwards. Overall, we observe a deceleration of R&D and innovation activities in the light of the crisis, but the trend figures remain positive. Driven by the companies that reinforce their R&D and innovation efforts to thrive through the downturn and thus seek to gather the benefits in the upswing to come, the R&D and innovation landscape is likely to look different in the aftermath of the crisis.

These changes will inevitably affect policy intervention in the field of innovation and are a unique chance for the reorientation of policy measures. More profoundly, they could be at the root of a new paradigm, departing from a transition from an industrial to a knowledge-based society.

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Authors: Subal C. Kumbhakar, Raquel Ortega-Argilés, Lesley Potters, Marco Vivarelli and Peter Voigt

The main objective of this study is to investigate the impact of corporate R&D activities on firm performance, measured by labour productivity. To this end, the stochastic frontier technique is used on a unique unbalanced longitudinal dataset on top European R&D investors over the period 2000–2005. The study quantifies technical inefficiency of individual firms. From a policy perspective, the results of this study suggest that – if the aim is to leverage firms’ productivity – emphasis should be put on supporting corporate R&D in high-tech sectors and, to some ex-tent, in medium-tech sectors. On the other hand, corporate R&D in the low-tech sector is found to have a minor effect in explaining productivity. Instead, encouraging investment in fixed assets appears important for the productivity of low-tech industries. Hence, the allocation of support for corporate R&D seems to be as important as its overall increase and an ‘erga omnes’ approach across all sectors appears inappropriate. However, with regard to technical efficiency, R&D intensity is found to be a pivotal factor in explaining firm efficiency. This is true for all industries.

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Authors: Francesco Bogliacino and Sebastian Gómez Cardona

In this paper we estimate a behavioural equation for R&D investment. We assess the impact of liquidity constraints and capabilities, measured respectively as internal cash flow and distance from the technological frontier.

We perform our estimation on an industry level panel covering fifteen European countries from 1996 to 2005 and on a sample of European R&D performers extracted from COMPUSTAT covering 2000-2008. Both at industry level and firm level we found that financing constraints exist and that distance from the frontier negatively affects the decision to engage in R&D.

The main policy implications are the following: (a) R&D is a cash constraint investment, thus the amount which is performed on the market is suboptimal and specific policies should try to overcome these financing constraints, (b) the lack of R&D is also generated by lack of capabilities, so the economy needs specific inetrventions tailored on the generation of enablers, such as human capital accumulation.

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Authors: Abraham Garcia and Dominique Foray

In this paper the effect of firm's size is analyzed in relation with the probability to apply for a patent. We work on the identification of a minimal firm's size, a threshold, needed to formally protect an innovation by a legal mean.

Below this minimal size the costs associated to the protection will be so high that firms will prefer informal protection of their innovations. This paper shows some empirical evidence that at the international level the effect of size is very different from one country to the other.

It shows that the size effect disappears and does not seem to be an issue for big firms. It points to a critical size need to become an active user of patents. This critical size varies very much from one country to the other.

Therefore not only policies should be designed with different target across countries but the EU should provide the means to make the innovation protection accessible to all firms in all the EU countries.

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Authors: Francesco Bogliacino

The article addresses the effect of R&D on employment at firm level. We derive a reduced form labour demand where R&D expenditures enter in a non linear form. We estimate it using company data from R&D Scoreboard covering 2000-2008. The use of panel data technique allows addressing the causality issue.

The main findings can be summarized as follows. Our results confirm that R&D and innovation have positive employment impact at firm level. This impact varies according to how much the firm invests and also to its size, in terms of sales. The main implication is that the positive job creation effect increases when the R&D intensity of the firm increases.

The policy implications of the results are the following ones:

a) Policy simulations should include a proper calibration of the R&D employment elasticity. Since this appears to be non constant, then taking the average value can generate non robust predictions;

b) Policy oriented towards the entrance of new R&D intensive firms are welcome for both their labour market effect and the competition effect they generate on existing big players.

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Authors: Michele Cincera and Reinhilde Veugelers

The difference in industrial structures explains most of the EU's aggregate corporate R&D intensity gap with the US. Increasing the number of large European companies in high R&D intensity sectors would help to reach the overall EU R&D intensity targets.

Bringing the age of the Scoreboard companies as an additional variable in this comparative analysis provides additional interesting insights concerning the origin of EU's R&D intensity gap. Younger companies (i.e. those created from 1975 onwards) show higher R&D intensity than the older ones and are more numerous in the US than in the EU. Moreover, the younger companies based in the EU are less R&D intensive than their US counterparts. Altogether these factors explain to a large extent the overall lower R&D intensity of the EU companies. Additional analysis on the factors behind these differences in structure and in company dynamics between the EU and the US might help to identify targeted policy measures aimed at boosting R&D corporate investment levels in Europe.

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Authors: Roberta Piergiovanni and Enrico Santarelli

This paper aims at investigating in a quantitative way the main factors influencing the patent output of a sample of European and non-European biotechnology firms. Statistical models for count data are used to analyze the role exerted by the input of indirect knowledge acquired from capital expenditures and direct knowledge from in-house R&D. Results demonstrate that R&D and capital expenditures are complementary forces and determinants in the overall innovation process.

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Authors: Francesco Bogliacino and Mario Pianta

This paper aims at investigating in a quantitative way the main factors explaining: (i) the decision to engage in R&D activities; (ii) the innovation performance; and (iii) the determinants of profits. We found a postive effect of past profits of R&D investment, an overall significant role of demand in economic performance and a negative effect of the distance from the technological frontier in explaining R&D investment. Moreover, we argue that innovative activity is more complex than pure research.

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Authors: Francesco Bogliacino and Marco Vivarelli

This paper using a unique database covering 25 manufacturing and service sectors for 15 European countries over the period 1996-2005, for a total of 2,295 observations, and apply GMM-SYS panel estimations of a demand-for-labour equation augmented with technology investigates the impact fo R&D expenditures on job-creating effects.

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Authors: Michele Cincera and Julien Ravet

This paper explores the existence and importance of financing constraints for R&D investments in large EU and US manufacturing companies over the 2000 – 2007 period.

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Authors: Michele Cincera, Claudio Cozza and Alexander Tübke

This paper aims at investigating in a quantitative way the main factors explaining: (i) the decision of firms to increase their R&D investment effort in the near future; (ii) the main drivers explaining the favourite international location choice for R&D; and (iii) the impact of direct and indirect policies to support R&D activities in the EU.

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Authors: Pietro Moncada-Paternò-Castello

This paper focuses on the main differences between the EU and the US in corporate R&D performance, especially in the following three main aspects: (i) dynamics of the economic structures and the cause of the R&D intensity gap; (ii) R&D performance and company demographics and (iii) financial availability and corporate R&D investment.

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Authors: Raquel Ortega-Argilés, Lesley Potters and Peter Voigt

This paper typifies different groups of EU R&D-intensive SMEs according to their inputs into the innovation process. The results show that diversity between clusters calls for a more careful understanding of their characteristics before developing measures to support R&D-intensive SMEs.

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Authors: Michele Cincera, Raquel Ortega-Argilés and Pietro Moncada-Paternò-Castello

Based on an original data set over the 2003-2006 period, such analysis indicates that there is often a positive relationship between top R&D-investing companies and their performance in the stock markets as measured by the evolution of their market capitalisations' values.

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Authors: Francesco Bogliacino and Mario Pianta

The paper investigates the different patterns of technological change that can be identified through the use of the detailed data provided by innovation surveys at the sectoral level for major European countries, exploring the effects on labour productivity, employment and other performance indicators.

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Authors: Peter Voigt and Pietro Moncada-Paternò-Castello

The paper focuses on adjustments of firms' R&D strategies in the light of the economic turmoil and how the policy response to the global economic and financial downturn could change the R&D landscape.

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Authors: Pietro Moncada-Paternò-Castello, Constantin Ciupagea, Keith Smith, Alexander Tübke and Mike Tubbs

This paper examines the differences in private R&D investment performance between the EU and the US. It assesses the distributions of R&D intensity, the effects of the sector composition vis-à-vis the intensity of R&D in each sector, and the differences in demographics of large R&D investing companies.

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Authors: Lesley Potters

This paper investigates the impact of various innovation activities on innovation output by using Spanish CIS3 data on 3,247 innovative firms and applying several Knowledge Production Functions.

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Authors: Raquel Ortega-Argilés, Mariacritina Piva, Lesley Potters and Marco Vivarelli

This paper discusses the link between R&D and productivity across the European industrial and service sectors. It points out that corporate R&D investment is more effective in the high-tech sectors and this may need to be taken into account when designing policy instruments.

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Authors: Lesley Potters

Policy focus on R&D investment means little attention for firms that perform little R&D, but innovate in other ways, specifically firms from low-tech sectors. This paper deals with firms from these sectors, their role in the economy, innovation strategies and recent trends.

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Authors: Raquel Ortega-Argilés and Peter Voigt

This report discusses business R&D in SMEs in the light of a systematic review of publicly available information on industrial R&D, its common trends and related emerging issues.

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Authors: Deborah Cox and Dimitri Gagliardi

This document discusses the most relevant aspects of the public-private nexus of R&D. These aspects include the role of incentives for R&D and innovation investment, the significance of company size, the importance of skills and levels of education, as well as the availability and quality of R&D facilities.

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Authors: Jeremy Howells

This document analyses the nature of service R&D activity. It arguments that services are becoming more research intensive over time and the significance of innovation to their performance is also increasingly being recognised

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Authors: Vincent Duchêne, Elissavet Lykogianni and Arnold Verbeek

This paper focuses on the impact of differences in accounting practices between national statistical offices in Europe and in the US when classifying the reported R&D expenditure by industry.

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Authors: Raquel Ortega-Argilés, Lesley Potters and Marco Vivarelli

The aim of this study is to investigate the relationship between a firm's R&D activities and its productivity per employee using a unique micro data panel dataset and looking at sectoral peculiarities which may emerge.

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Authors: Raquel Ortega-Argilés and Andries Brandsma

This paper analyses the R&D productivity link at the macro, sectoral and firm level. It concludes that high-tech sectors are getting more in terms of productivity per employee from R&D efforts.

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Authors: Pietro Moncada-Paternò-Castello and Keith Smith

This paper reflects upon the EU policy target to foster the private R&D investment and argues that the EU's strategy is short on policy instruments to reach such targets.

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