Assessing the potential for knowledge-based development in transition countries. Bruegel Working Paper 2010/01, May 2010

This Working Paper by Bruegel Senior Fellow Reinhilde Veugelers examines the potential for a knowledge-based growth path in transition countries of central and eastern Europe, the Caucasus and Central Asia. The paper looks closely at how total-factor productivity, a residual growth factor commonly interpreted as reflecting technological progress, drives growth rates in these economies which exhibit a much lower GDP per capita compared to the EU15 or the United States. By analysing the prerequisites for knowledge-based growth, the author explains why transition countries are at a systemic disadvantage relative to the EU15, US and Japan and have limited potential for knowledge-based growth

Europe's missing yollies

In this Policy Brief, Bruegel Senior Fellow Reinhilde Veugelers and Michele Cincera, Professor at ULB, draw our attention to young leading innovators ('yollies'). They explain why the European Union's business research and development deficit, relative to the United States, can be attributed to the EU having fewer yollies, especially those that are less R&D intensive. This paper raises important and timely questions about the EU's innovation policy. The authors argue why policy makers should pay attention to the heterogeneity across young sectors and design sector-specific measures to boost innovation and growth in the EU.

Towards a multipolar science world: Trends and impact.

This paper brings together recent statistical evidence on international (co-)publications and (foreign) PhD-students and scholars to document shifts in geographic sources of scientific production and their impact. The evidence demonstrates that despite the continued dominance of the US and the increasing importance of the EU, the TRIAD is in relative decline. Other geographic sources of science outside the TRIAD are rising, both in quantity, but also, although still to a lesser extent, in quality. Especially China drives this non-TRIAD growth. This catch-up of non-TRIAD countries drives a slow but real process of global convergence. It nevertheless leaves a less equal non-TRIAD science community, as the growth of China, is not matched by other non-TRIAD countries. Despite the rise of China’s own scientific production, and the increasing return flows of overseas students and scholars, the outward flows of Asean talents have not diminished over time. The data suggest a high correlation between the patterns of international mobility of scientists and the patterns of international collaborations. The large and stable flow of Chinese human capital into the US forms the basis on which stable international US-Chinese networks are built. With the EU lacking this Chinese human capital circulation, it is more difficult to build up similar strong and stable networks.

Innovation, jobs and growth in Europe: Tackling deficiencies in EU's innovation capacity.

With the adoption of the Lisbon Strategy in March 2000, to make Europe a competitive knowledge-based economy by 2010, and the Barcelona objectives agreed upon in 2002 to increase R&D investment in the EU to approach 3% of GDP, the European leaders acknowledged the need for profound reforms in the EU in view of the challenges of ageing, enlargement and globalisation. EU Heads of State and Government were well aware that such policy endeavour could only be effectively undertaken by a concerted approach involving all Member States and involving many policy areas where competence lies at both national and EU level. These objectives and orientations were confirmed and strengthened in the renewed Lisbon strategy launched in 2005. To date, one of the most disappointing aspects of the Lisbon strategy is the performance on R&D andInnovation. While there are examples of good performance in particular sectors and particular Member States, overall the EU innovation environment remains weak This is all the more remarkable taking into account that the Lisbon European Council rightly recognised that Europe's future economic development would depend crucially on its ability to create and grow high value, innovative and research-based sectors. This contribution tries to provide some insight into the issue by first assessing (section 2) and identifying the causes (section 3) of EU's growth and innovation problem. It then discusses how policy should be designed to tackle EU's innovative capacity (section 4), to continue with a discussion of EU's actual policy agenda (section 5). We conclude with suggestions for moving policy forward (section 6).Citations; Data; Firm level data; Firms; Forward citation; Industrial innovation; Innovation; IT; Linkage; Patent; Patents; Performance; Publications; Quality; Research; Science; Technology; Job; Strategy; Economy; R&D; Investment; Policy; Area; Sector; Value;

International R & D expenditures and external technology sourcing.

The paper examines the two-way relationship between external R&D activities and internal R&D expenditures on a cross-section of Flemish R&D active companies. The analysis extends the classical explanatory variables like size, diversification, ownership structure and technological opportunities to include the impact of various external sourcing strategies. R&D cooperation and to a lesser extent R&D contracted out are found to have a significant positive effect on internal R&D but only if the companies have absorptive capacity in the form of a full-time staffed R&D department. At the same time firms are found to be more likely engaged in R&D cooperation, the more they spend on internal R&D.International; Sourcing;

Activating the private clean innovation machine.

In view of the sizeable climate change challenge, we need a clean innovation machine operating at full speed. The private clean innovation machine, left on its own, is not up for this challenge. It needs government intervention to address the combination of environmental and knowledge externalities and overcome path dependencies. The firm level evidence presented in this contribution on the motives of private sector firms for introducing clean innovations from the latest Flemish CIS eco-innovation survey confirms that firms are responsive to eco-policy interventions. It is however not a panacea. The high importance of demand pull from customers and voluntary codes of conduct or voluntary sector agreements as drivers for introducing clean innovations, is a reminder of the internal strength of the private innovation machine, which government should try to leverage. The evidence is also strongly suggestive of how important the details of the policy design are. Policy interventions are more powerful to induce the adoption and development of new clean technologies when designed time consistently, affecting future expectations.

A G2 for science?

Science is becoming increasingly globalised. The emerging economic powerhouses, particularly China, are building up their own scientific capabilities rapidly and in a targeted way. This is provoking concern within advanced economies that they might be losing their advantage in the scientific domains that can be part of the foundation for new areas of growth. Strategies for knowledge-based growth, such as the European Union's 2020 strategy, must take these global trends into account it theyare to deliver long-term international competitiveness.

A lifeline for Europe's young radical innovators

In this Policy Brief, Reinhilde Veugelers shows that Young Innovative Companies (YICs) in Europe achieve significantly higher innovative sales than other innovation-active firms, representing 36% of sales having market novelties. She also confirms that YICs are more affected by credit constraints than other innovation-active firms. If Europe is to exit the current crisis intact and fulfill its full growth potential in the medium term, the author therefore believes Europe must develop policies and incentives which are tailored to the needs of European young radical innovators.

Innovation in EU merger control: walking the talk

European Union policymakers have in principle put innovation at the heart of competitiveness, in particular in the Europe 2020 strategy. But in merger control, assessments of the innovation effects of mergers are inadequate, even though mergers and acquisitions can have a significant impact on the development of the structure of an industry, and on its capability to innovate. EU merger control rules include scope for assessing the innovation effects of mergers, but in practice, the European Commission's directorate-general for competition (DG COMP) is not â??walking the talkâ??. Innovation effects are only assessed when claimed by parties to a merger, and this happens rarely. Where innovation effects have been claimed, they have not been decisive in any case, meaning DG COMP has not considered them important enough to influence its decision. A framework should be put in place that makes the reporting of efficiency-related information by the merging parties mandatory, so that innovation effects can be properly assessed for all mergers. In addition, models can be used to make an assessment of the longer-term innovation effects of a merger, and to help inform decision-making. The author acknowledges the excellent research assistance of Joan de Solà-Morales and Hendrik Meder, and would like to thank Lars-Hendrik Röller for discussing and commenting on earlier versions of the paper.

Assessing the potential for knowledge-based development in transition countries

This Working Paper by Bruegel Senior Fellow Reinhilde Veugelers examines the potential for a knowledge-based growth path in transition countries of central and eastern Europe, the Caucasus and Central Asia. The paper looks closely at how total-factor productivity, a residual growth factor commonly interpreted as reflecting technological progress, drives growth rates in these economies which exhibit a much lower GDP per capita compared to the EU15 or the United States.  By analysing the prerequisites for knowledge-based growth, the author explains why transition countries are at a systemic disadvantage relative to the EU15, US and Japan and have limited potential for knowledge-based growth.