Title: Young Leading Innovators and EU's R&D Intensity Gap
Citation: Bruegel Policy Contribution no. 2010/09 p. 1-19
Publisher: Bruegel
Publication Year: 2010
JRC N°: JRC60301
URI: http://www.bruegel.org/
Type: Articles in periodicals and books
Abstract: Innovation in the European Union remains weak according to a number of key ¿input¿ indicators, especially R&D investment by the business sector. Furthermore, there are relatively few signs of progress despite the 3% Barcelona target established in 2000 (EC-Key Figures 2010). Compared to the United States the EU-private R&D deficit primarily manifests itself in ICT goods and services. This correlates with a lower specialisation of the EU economy in these R&D intensive, high growth sectors of the 1990s (O¿Mahoney & van Ark (2003), Denis et al. (2005), EC Key Figures (2005), Moncada et al. (2009)). Further, firm-level evidence suggests that the EU¿s R&D deficit in the information technology sector may reflect constraints on the rapid growth of new, technology-based entrants in the EU compared to the US. From this firm-level perspective, the continued business R&D deficit seems a symptom rather than a cause of the EU¿s weakness in innovation; the cause seems rooted in the structure and dynamics of EU industry and enterprise. Europe¿s innovation gap results from an inappropriate industrial structure in which small and new firms fail to play a significant role in the dynamics of the industry, especially in the high-tech intensive sectors. This is illustrated by their inability to enter and grow to become market leaders. The creative destruction process encounters significant obstacles in the EU, weakening Europe's growth potential position (Aghion et al. (2007). This structural EU innovation deficit story has attracted many supporters. But it has received little or no thorough empirical investigation. This Policy Contribution aims to address this ¿evidence gap¿. To this end, we decompose the latest JRC-EC-IPTS Industrial R&D Scoreboard (European Commission 2008) of leading innovators in terms of global R&D expenditures by age cohort. We compare the innovation profile of young versus old leading innovators in the scoreboard and examine how the contribution of young leading innovators can explain the EU¿s lagging leading innovation performance. We find that the EU has fewer young firms among its leading innovators. But this effect only accounts for about one-third of the US-EU differential. The largest part of the differential is due to the fact that young leading innovators in the EU are less R&D intensive than their US counterparts. Further unraveling shows that this is almost entirely due to a different sectoral composition. Young leading innovators in the US are found in R&D intensive young sectors, with biotechnology and Internet being the clearest cases. We thus confirm that the EU-US private R&D gap is indeed mostly a structural issue. Bridging this gap will require the EU to nurture more young firms in young sectors, to grow to become young leading innovators .
JRC Directorate:Growth and Innovation

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