diverging tfp/innovation trendsec.europa.eu/economy_finance/events/2016/20161128-arc...2016/11/28...
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Diverging TFP/Innovation trends
Facts and policiesReinhilde Veugelers
KULeuven & Bruegel
Annual Research Conference DG ECFIN
Brussels, November 2016
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MotivationOver the medium- to longer term, trends in innovation capacity and total factor productivity growth will determine the growth and convergence trajectories of the EU economies.
Moreover, persistent innovation and productivity growth divergences among EU, and in particular euro area, countries raise concerns of rising income differentials and long-term cohesion across countries.
• What are the major trends and drivers of total factor productivity growth in the EU? And of innovation capacity more specifically?
• How different are the TFP and Innovation numbers for EU member countries?
• Are the differences diminishing over time, establishing convergence?
• Are the laggards catching up?
• Impact of the crisis?
• What policy recommendations to re-ignite a sustainable convergence process?
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Assessing heterogeneity and convergence
We will look at trends in TFP growth and Innovation capacity more particularly & directly
Because of different capacities to put in place a virtuous innovation-growth eco-system, but also because of differences in initial conditions requiring innovation systems to be composed in a different way, we can expect substantial heterogeneity among European countries in innovation capacity.
We expect the process of EU and economic integration to push convergence in innovative capacity and TFPgrowth
To measure heterogeneity in innovation capacity, we use the σ-coefficient or the coefficient of variation CV (√VAR/MEAN).
σ-convergence occurs when the dispersion (CV) across a group of economies, decreases over time.
We will look within the EU, to different groups, reflecting different (initial) conditions and capacities:• EURO vs NON-EURO• EU15 vs EU13 • EU SOUTH vs EU NORTH • Innovation leaders vs Innovation laggardsWe will disentangle overall EU heterogeneity (and its trend) into between group gaps (and its trend) and within group heterogeneity (and its trend)
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Trends in TFP growth
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Dispersion in TFP growth: trend
Sigma convergence (coefficient of variation)
EU: EU 15 vs EU13
Sigma convergence (coefficient of variation)
Eurozone
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Trends in Innovation Capacity
1 IUS is a composite indicator capturing 8 dimensions of innovation: Human Resources, Research Systems,
Finance, Firm Investment, Linkages, IPR, Innovations, Economic Effects. For the international benchmarking of
Europe, it uses information from 12 indicators to assess these 8 dimensions.
Source: EC, Innovation Union Scoreboard, 2016
Source: EUROSTAT (2016)
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Innovation Capacity within EUInnovation Union Score by EU Member States
0,000
0,100
0,200
0,300
0,400
0,500
0,600
0,700
0,800
RO BG HR LV LT PL SK HU ES EL PT IT CZ MT EE CY SI EU FR AT LU UK BE IE NL DE FI DK SE
IUS score 2015 EU-28
IUS-1IUS-2IUS-3IUS-4
Source: EC, Innovation Union Scoreboard, 2016
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Trends in Innovation Capacity within EU
Source: Own calculation on basis of EC, Innovation Union Scoreboard, 2016
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Convergence in Innovation Capacity within EUσ-convergence in Innovation Capacity
Source: Own calculation on basis of EC, Innovation Union Scoreboard, 2016
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Source: EC, Innovation Union Scoreboard, 2016
Selected Countries
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Trends in Within and Between Group Variation in IUSBy IUS groups
Source: Own calculation on basis of EC, Innovation Union Scoreboard, 2016
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Trends in Within and Between Group Variation in IUSBy Region
Source: Own calculation on basis of EC, Innovation Union Scoreboard, 2016
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Private Sector Innovation CapacityBusiness Expenditures on R&D: EU-World
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Private Sector Innovation CapacityBusiness Expenditures on R&D
Source: Own calculation on basis of EC, Innovation Union Scoreboard, 2016
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Convergence in Private Sector Innovation Capacity within EU
Source: Own calculation on basis of EC, Innovation Union Scoreboard, 2016
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Private Sector Innovation Capacity:SMEs introducing innovations
CEESOUTH
NORTH
Source: EC, Innovation Union Scoreboard, 2016 on basis of different waves of CIS
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Private Sector Innovation Capacity:SMEs introducing innovations
Source: Own calculations on basis of EC, Innovation Union Scoreboard, 2016 on basis of different waves of CIS
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Convergence in Private Sector Innovation Capacity
Source: Own calculations on basis of EC, Innovation Union Scoreboard, 2016 on basis of different waves of CIS
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Enablers of innovation capacity: public R&D expenditures
Source: Own calculations on basis of EC, Innovation Union Scoreboard, 2016
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Enablers of innovation: Convergence in public R&D expenditures within EU
Source: Own calculations on basis of EC, Innovation Union Scoreboard, 2016
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Source: EC, Innovation Union Scoreboard, 2016
Selected Countries
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Enablers of innovationQuality of Science Base
Source: Own calculations on basis of EC, Innovation Union Scoreboard, 2016
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Enablers of innovationQuality of human capital
Source: Own calculations on basis of EC, Innovation Union Scoreboard, 2016
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Trends in Convergence in Innovation Capacity Comparing components of Innovation Capacity
Source: Own calculations on basis of EC, Innovation Union Scoreboard, 2016
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Main findings
• Overall feeble performance of EU relative to world peers, with (too) slow catching up
• Substantial & persistent heterogeneity within EU• Slow pre-crisis convergence halted;• Signs of increasing divergence post crisis recovery
• When decomposing the within EU persistent heterogeneity:• Substantial and persistent gap in performance across groups (innovation leaders/laggerds,
EU15-13, North-South)• Some weak signs of closing gaps between EU15-13
• Leaders losing momentum (FI) • Some bottom laggards catching up (LV)
• Within group EU13 variance is high & persistent; • Within EU15: North-South divide important and persistent
• Heterogeneity is highest & persistent for Business R&D; lower for SMEsIntroducingInnovations but also persistent
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Main findings continued
Persistent heterogeneity in (policy) enablers for innovation
• Public R&D: substantial heterogeneity within EU and increasing• Substantial gap between leaders/laggards; EU15-13• Innovation leaders forging ahead, with no catching up from laggards• Increasing within EU13 variance
• Quality of the science base in EU countries: persistent and high variance• EU15-13 persistent gap • Within EU13 heterogeneity
• Quality of Human Capital: Heterogeneity within EU has declined• Catching up of laggards: especially of EU13• Within EU13 heterogeneity has declined
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Next steps for research
Zeroing in on Europe’s capacity for structural change• Missing “new” sectoral specialization with opportunities for innovation based growth• Missing “new” companies with opportunities for innovation based growth• Stuck in “old” sectoral specialization with failure to adjust• Stuck in “old” firms with failure to adjust
• A within and across sectors analysis• A within and across firm level analysis
Mapping within EU linkages of national innovation systemsFrom a collection of national/regional systems towards a truly integrated EU system:strengths by EU countries/regions spilling over into innovation, productivity growth
and economic returns in other EU countries
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Main tentative policy implications
• Framework conditions and budget for change• Competitive markets for change, finance for change, regulation enabling /not
impeding change
• Quality of the human capital base and the public science & research infrastructure for change
• Framework conditions and budget for integration• Improving cross-border spillovers of national enablers
• Removing barriers for European Innovation Value Chains