Public funding of research and innovation (R&I) acts as a catalyst to boost private R&I activities and overall economic growth, according to the report, “The Economic Rationale for Public R&I Funding and Its Impact,” which was released last March by the European Commission.
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, due to the positive spillover effects that enable other firms to benefit from these investments.
The study, which reviews existing empirical literature, underlines that the role of public R&I funding is especially important in light of the current rapidly changing and riskier innovation landscape.
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—that is, solutions or products that completely reshape markets.
The study also examines the factors that have contributed to a temporary slowdown in Europe’s productivity. It argues that the digitization of the economy in the past decades has revolutionized 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.
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Public funding of research and innovation (R&I) acts as a catalyst to boost private R&I activities and overall economic growth, according to the report, “The Economic Rationale for Public R&I Funding and Its Impact,” which was released last March by the European Commission.
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, due to the positive spillover effects that enable other firms to benefit from these investments.
The study, which reviews existing empirical literature, underlines that the role of public R&I funding is especially important in light of the current rapidly changing and riskier innovation landscape.
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—that is, solutions or products that completely reshape markets.
The study also examines the factors that have contributed to a temporary slowdown in Europe’s productivity. It argues that the digitization of the economy in the past decades has revolutionized 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.