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Is There a Role for European Innovation Policy in Combatting Economic Downturn?

Auteur : Arnold René C.G., Bertenrath Dr. Roman
Date de publication : 06/10/2011
Type : Etude
Thème : Recherche et développement
Couverture : Maroc

Résumé/Sommaire :

European countries are struggling to recover from the recent downturn caused by the financial and economic crisis. More often than not, it is assumed that private investment in R&D and innovation (R&D&I) is pro-cyclical, i.e. companies reduce their R&D&I expenditures in an economic downturn. Innovations or their implementation are postponed until the following upswing. With innovation being one of the driving forces behind new and sustained growth, policy makers are encouraged to increase firms’ R&D&I investments during economic downturn. If innovation influences long-term economic development positively, public support for R&D&I activity seems all the more advisable in light of the large amounts of debt which states have accumulated by rescuing systemically relevant businesses such as banks. Against this backdrop, the present study seeks to investigate the cyclicality of private and public innovation investments in the long-term as well as in the recent financial and economic crisis. German firms’ R&D&I behaviour and their evaluations of key innovation policy instruments are analysed. From this evidence, policy recommendations are developed.

As a first step in the course of this study which is part of PRO-INNO / INNO-Grips, the annual growth rates for GERD (excl. BERD) , BERD and GDP of 13 countries were analysed. These indicators were analysed over a period of almost 30 years and served as a proxy for the cyclicality of public and private R&D&I activities . Additionally, other official statistics and surveys such as Eurostat data and the Innobarometer surveys were analysed. The central part of the study, however, was based upon the results of the IW Future Panel – a survey regularly administered to 2,500 to 5,000 German firms which are representative for core sectors of the German economy i.e. the lines of industry facing direct or indirect international competition (industry and services close to the industry). Results from the IW Future Panel are updated regularly and allow us to examine German firms’ innovation behaviour throughout the financial and economic crisis. Furthermore, the data allow us to investigate incentives and impediments for R&D&I investments in detail as well as firms’ evaluation of innovation policy instruments. The data analysed for the present paper goes beyond the data presented in the study published as part of the INNOGrips initiative. All results are interpreted in light of in-depth expert interviews. The result of the long-term observation of key innovation activity indicators and GDP in 13 countries clearly indicates the pro-cyclicality of R&D&I activities for EU Member States as well as Non-Member States. The majority of empirical studies that deal with the cyclicality of private R&D&I activities support the proposition that R&D&I activities in particular those of the private sector are pro-cyclical. Insufficient availability of financial means is commonly quoted as the main reason for reducing R&D&I activities during economic downturns in these studies. Insofar, the proposition of firms’ pro-cyclical behaviour is supported in the long-term perspective.

However, when one turns from these general findings regarding long-term patterns to the recent crisis, a new picture seems to emerge. Recent official EU-wide surveys indicate that firms’ behaviour in the recent financial and economic crisis potentially differs from the assumed pro-cyclical pattern, i.e. firms are keeping their R&D&I activities stable or increasing them despite the economic downturn 2008/2009. IW Future Panel (firm-level) data further verify this finding. More than a quarter of German firms increased their innovation investments in the period 2007 to 2009. The main drivers for increasing investments as identified by firms were customers and competitors. Thus, there is reason to believe that firms have behaved differently during the recent financial and economic crisis.

When comparing EU Member States’ and Non-Member States’ direct policy reactions to the financial and economic crisis, differences in policy approaches become obvious. More specifically, differences between countries leading in innovation and others achieving merely “moderate innovator” or “innovation follower” status emerge. Germany as an innovation leader with an established and wellfunctioning innovation system concentrated its policy during the recent financial and economic crisis on labour and economic policy rather than innovation policy itself. Other countries, mainly those with worse innovation performance ratings put relatively more innovation policy measures in place during the same period – apparently with fewer results. These results hold implications for policy makers on regional, national, and European level.

First, all empirical evidence supported the importance of innovation policy’s long-term stability i.e. stabilising and improving the innovation system to the benefit of all actors involved thereby enhancing resilience against economic downturn. Second, policy measures taken in Germany and elsewhere underline that there is also potential for innovation policy-makers to react flexibly in the short-term using direct financial support measures to keep private R&D&I activities at a desirable level. The latter is likely to show better macroeconomic effects when a well-functioning innovation system is established and innovation policy is administered complementary to other policies such as regional development, labour market, and economic policy.

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