Public investment in research and innovation more important than ever, new study confirms
Public funding of research and innovation (R&I) acts as a catalyst to boost private R&I activities and overall economic growth, according to a report released today by the European Commission. The study, which reviews existing empirical literature, underlines that the role of public R&I funding is especially important in light of today's rapidly changing and riskier innovation landscape.
Carlos Moedas, Commissioner for Research, Science and Innovation said: "The study demonstrates once again the importance of public investments in research and innovation. Such investments are necessary to boost excellent research and support new forms of radical, market-creating innovation often driven by digitalisation."
The Commission presented the study during today's meeting of the European Research Area and Innovation Committee (ERAC) in Saint Julian's, Malta. The report will be submitted to the high level group of experts chaired by Pascal Lamy, President Emeritus of the Jacques Delors Institute, who advises the Commission on how to maximise the impact of the EU's investment in R&I.
The study finds that roughly two thirds of economic growth in Europe can be traced back to innovation. It also estimates that the typical returns for private R&I investment range between 10% and 30%. These returns can be twice or three times higher for the economy in general, thanks to the positive spillover effects that enable other firms to benefit from these investments.
Public R&I investment helps generate and diffuse new knowledge. It also contributes to developing new skills and creating networks that enable stronger knowledge flows. Overall, the returns on public R&I investment are estimated to be around 20%, with returns on EU-funded R&I estimated to be even higher.
However, for public R&I funding to have maximum impact, it should cover the whole cycle of innovation, from fundamental research to market-creating innovation – i.e. solutions or products that completely re-shape markets.
The study also examines the factors that have contributed to a temporary slowdown in Europe's productivity. It argues that the digitisation of our economies in the past decades has revolutionised the way in which innovation works and how its benefits are diffused, with a growing concentration of innovation benefits with some key players. This has broad implications for public innovation policy.