Research Funding in Europe - Promising Collaborations

ZEW Study: Governmental incentives for the funding of R&D projects are often more successful than expected. Linking governmental subsidies to the cooperativeness of the subsidised companies has a positive impact on innovation results.

High prosperity standards in Germany and the rest of the European Union require high technological capacities that enable Europe to remain competitive on an international scale, particularly with regard to countries such as the U.S. and China. The figures representing the expenses on research and development (R&D), however, are alarming. Compared with the EU, the U.S. annually invests about EUR 120 billion more in R&D, and thus in new, competitive ideas and products.

To prevent the EU from falling further behind US and Asian competitors, policy-makers took a major effort to decide on an Action Plan for Europe as early as in 2002. This action plan aims at raising R&D expenditures from currently 2.0 per cent of GDP to 3.0 per cent. Businesses are to bear two thirds of the increase while government covers one third.

A study by the Centre for European Economic Research (ZEW), Mannheim, and the Technical Research Centre Finland (VTT) has now examined whether increased public R&D funding effectively stimulates corporate innovation activity. Germany and Finland represent Europe particularly well in this comparison, since they constitute economies of different sizes with comparable innovation policies, but differing development trends. The study measures economic “innovation success” on the basis of patent applications incited partly by governmental research funding and research collaborations. Patent applications are a suitable indicator as they paint a reliable picture of a country’s future technological performance.

The analysis of about 3,000 firms shows that financial support provided by the government tends to be more successful than often assumed. Companies receiving state funding for their R&D projects are more inclined to apply for patents than those without such financial support. Deadweight effects may appear in individual cases, but have proven to be rather irrelevant for the overall assessment. The researchers further examined this positive evaluation of policy measures and identified essential underlying mechanisms.

In Germany, the positive effects of governmental funding are based on the associated collaborations with the academia or other firms, for instance, chosen by the companies themselves. Cooperation positively stimulates the innovation results of the researching companies. The same applies to Finland. R&D collaborations are far more common in Finland than in any other EU member state, which is why it is hardly possible to raise innovation activities by propping up funding for R&D cooperation there. Germany, by contrast, has much potential that is yet to be tapped, particularly among innovative mid-tier companies. Setting up research collaborations and networks, for example, could be a valuable contribution to improving the technological performance.

The study thus concludes that governmental funding alone does not guarantee higher R&D investments. What is rather needed is the collaborative exchange of knowledge. State support can enable firms to achieve greater innovation successes provided it also requests cooperation. Smaller companies can benefit from governmental support particularly because the funds enable them to carry out risky R&D projects in the first place.

What counts, however, are collaborations associated with the research funding. The question is how to concretely shape the existing quite sensible approaches to funding. Supported cooperation networks of companies entitled to funding are often considered too large and cumbersome. European research policy should thus, on the one hand, stimulate R&D collaborations in the private sector while making sure on the other hand that these cooperations remain workable. If the fragmented Europe is able to mimic the collective innovative spirit of American companies, it may stand a chance of reaching its ambitious three per cent target.

Contact

Dr Andreas Fier, E-mail: fier@zew.de