2011 Working Papers Series on Corporate R&D and Innovation 2011 Working Papers Series on Corporate R&D and Innovation

Job Creation Effects of R&D Expenditures: Are High-tech Sectors the Key?

Authors: Francesco Bogliacino, Mariacristina Piva, Marco Vivarelli
No. 10/2011

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.

The relevance of marketing in the success of innovations

Authors: Abraham García
No. 09/2011

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).

Design and European firms' innovative performance: A less costly innovation activity for European SMEs?

Authors: Daria Ciriaci
No. 08/2011

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.

The European Research Framework Programme and innovation performance of companies. An empirical impact assessment using a CDM model.

Authors: Abraham García
No. 07/2011

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.

Intangible resources: the relevance of training for European firms' innovative performance

Authors: Daria Ciriaci
No. 06/2011

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.

Access to Finance for Innovation: The Role of Venture Capital and the Stock Market

Authors: Francesco Bogliacino and Matteo Lucchese
No. 05/2011

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.

Job creation in business services: innovation, demand, polarisation

Authors: Francesco Bogliacino, Matteo Lucchese and Mario Pianta
No. 04/2011

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.

Companies' growth in the EU: What is research and innovation policy's role?

Authors: Pietro Moncada-Paternò-Castello
No. 03/2011

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.

Evolution of globalised business R&D: Features, drivers, impacts

Authors: Pietro Moncada-Paternò-Castello, Peter Voigt and Marco Vivarelli
No. 02/2011

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.

Globalisation, industrial diversification and productivity growth in large European R&D companies

Authors: Michele Cincera and Julien Ravet
No. 01/2011

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.