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Science, Research and Innovation performance of the EU A contribution to the Open Innovation Open Science Open to the World agenda 2016 Research and Innovation 12 Science, Research and Innovation performance of the EU Introduction After several years of economic turmoil with Against this backdrop, the Science, Research a double-dip recession and one of the worst and Innovation performance of the EU 2016, a financial and economic crises in generations, the publication of the Directorate-General for Research European Union (EU) seems to have regained and Innovation of the European Commission, economic growth, even if the recovery remains assesses the European Research and Innovation weak and needs to solidify. The economic (R&I) landscape within the global context. It recession emphasised Europe’s long-term growth identifies strengths and persistent challenges both gap with the United States, and unveiled structural for the EU as a whole and for its Member States. weaknesses in the economy. At the same time, The report focuses on those aspects which underpin some Asian competitors, e.g. South Korea, and the creation of effective and efficient R&I systems notably China, have increased their growth and that are able to sustain economic and productivity continue to catch up. Thus, setting the foundations growth and that generate gainful job opportunities. for strengthening the economic recovery and creating sustainable high quality growth and job The objective of this analysis is to provide sound creation is a priority for Europe. analytical foundations for evidence-based policy- making and to help policy-makers, but also The gross domestic product (GDP) gap and GDP researchers, businesses, and other stakeholders, growth gap between the EU and the United States identify policy priorities both at the EU and is largely driven by a gap in labour productivity Member State level. that is expanding, most notably among the most advanced European economies. Boosting labour As such, the Report caters to a wide audience and productivity requires national economies to boost this is reflected in its structure. Part I analyses the the amount of capital available per worker, i.e. European R&I landscape based on a core set of capital deepening, and to increase the efficiency indicators and is intended to provide policy-makers in which production factors are combined, i.e. with a general overview of the key strengths and multifactor productivity. weaknesses of the different elements of the EU R&I system. More precisely, it analyses the role Since the crisis, investment in capital has been low that R&I plays in the current economic context in most EU countries, and multifactor productivity for the EU, the levels of investment in knowledge growth has been flat or negative, except for creation, the knowledge flows, the scientific and Ireland. Multifactor productivity growth has been technological outputs and their specialisation in particularly poor in the most advanced European particular fields, the soundness of the framework economies, while in Japan, the United States, conditions for effective development and uptake of and notably, South Korea, it has grown steadily innovation, and the socioeconomic impacts in terms in the past few years. While there are many of structural change of the European economy factors driving multifactor productivity, for most towards more knowledge- and technology- advanced economies, innovation and innovation- intensive activities. related investments, such as R&D, ICT, or skills development, are leading factors.I-1. General economic outlook 17 1. General economic outlook After several years of economic turmoil with are appearing, such as the slowdown in emerging a double-dip recession and one of the worst market economies and global trade, and financial and economic crises in generations, persisting geopolitical tensions. the European Union (EU) seems to have retaken the path towards economic growth, even if the The economic recession has emphasised Europe’s recovery remains weak and needs to solidify. long-term growth gap against the United States and Setting the foundations for strengthening the unveiled structural weaknesses in the EU economy. economic recovery and creating high quality jobs is a priority for Europe. The economic crisis has emphasised the persistent output gap between the EU and the (5) The European economic forecast report of United States, and the rapid catch-up of other October 2015 showed that the economic recovery economies, such as South Korea or China. in the EU was in its third year and should continue in 2016. For the EU as a whole, real GDP is forecast The legacy of the crisis will continue to be felt to grow by 2.0% in 2016 and 2.1% in 2017. To for years to come. The levels of private and a large extent, this more positive outlook is driven public debt in many countries remain very high by factors related to the overall decrease in energy and the shortfall of investment of the past few prices, following the drop in oil prices, the monetary years, with a drop of around EUR 430 billion (6) stimulus by the European Central Bank and other since its peak in 2007 , has reduced economic EU central banks, and the euro’s exchange rate growth, in a context of an ageing population depreciation, notably against the US dollar. that will hamper the expansion of the available labour force. In addition, continued structural Despite these positive developments, doubts still weaknesses hindering the ability of countries persist about the robustness of the recovery in to raise their levels of productivity, as will be the EU, should the above mentioned tailwinds presented, persist and cast doubts on the ability start to fade. At the same time, new challenges of Europe to grow in the long run. (1) Figure I-1-1 Evolution of GDP per head of population in real terms , 1995-2016 (1) ▶ Figure I-1-1 Evolution of GDP per head of population in real terms , 1995-2016 45000 United States 40000 35000 South Korea 30000 Japan 25000 EU 20000 15000 China 10000 5000 0 1995 1998 2001 2004 2007 2010 2013 2016 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs (1) Science, Research and Innovation Performance of the EU 2016 Note: PPS€ at 2005 prices and exchange rates. Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs (5) (6) http://ec.europa.eu/economy_finance/publications/eeip/pdf/ip011_ http://ec.europa.eu/priorities/sites/beta-political/files/factsheet1- (1) Note: PPS€ at 2005 prices and exchange rates. en.pdf why_en.pdf GDP per head of population (PPS€2005)18 Science, Research and Innovation performance of the EU Within the EU, while overall slow economic growth Germany, Sweden or Austria continued to has characterised the 2008-2013 recession grow during this period, while countries such period, large differences across Member States as Greece, Spain, Portugal, Italy or Cyprus emerged, creating not only an income-level contracted, evidencing structural weaknesses divide, but most importantly, a divide between and their inability to maintain the high levels Member States that grew, stagnated, or followed of prosperity achieved in previous years. In an economic adjustment process. Central and Eastern Europe, Poland and Slovakia achieved robust growth rates, while countries Income disparities across Member States in such as Hungary stagnated. Europe are well known and documented. The divide between high-income Nordic and Western In order to improve this situation, several European countries and catching-up countries in Member States have engaged in a series of Southern, Central, and Eastern Europe persists. structural reforms to improve the functioning of (7) However, the economic recession also evidenced their markets and regain fiscal stability , which the different ability of Member States to grow in some cases have appeared to start paying during this period, with stark differences within off, with above average growth rates forecast in Western economies and Central and Eastern countries such as Spain. countries. More precisely, countries such as (1) ▶ Figure I-1-2 GDP per head of population, 2014 and real growth in total GDP (1) , 2007-2014 Figure I-1-2 GDP per head of population, 2014 and real growth in total GDP , 2007-2014 80000 10 70000 8 60000 6 50000 4 40000 2 30000 0 20000 -2 10000 -4 0 -6 (2) (3) GDP per head of population, 2014 Compound annual real growth (%) in total GDP, 2007-2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Science, Research and Innovation Performance of the EU 2016 Data: Eurostat, DG Economic and Financial Affairs Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies (1) (2) (3) Notes: Compound annual gro Data: Eurostat, DG Econwth calculated from GDP in PPS€ at 2005 prices and exchan omic and Financial Affairs ge rates. IL: 2013. IL: 2017-2013. (1) (2) (3) Notes: Compound annual growth calculated from GDP in PPS€ at 2005 prices and exchange rates. IL: 2013. IL: 2007-2013. (7) http://ec.europa.eu/economy_finance/publications/economic_ briefs/2014/pdf/eb34_en.pdf United States Japan EU South Korea China Luxembourg Ireland Netherlands Sweden Austria Denmark Germany Belgium Finland United Kingdom France Italy Spain Malta Cyprus Czech Republic Slovenia Portugal Slovakia Lithuania Estonia Greece Poland Hungary Latvia Croatia Romania Bulgaria Norway Switzerland Iceland Israel Turkey GDP per head of population (current PPS€) Total GDP - real growth (%) I-1. General economic outlook 19 Low rates of economic growth have severe Germany and Poland, managed to decrease their implications on the ability of many European unemployment rates, while countries such as Greece, economies to create new employment Spain or Cyprus saw their rates rocket to intolerably opportunities, notably in those countries that have high levels. While labour market conditions are been more severely hit by the crisis and where improving in general, and rosier economic growth current unemployment rates are unsustainable. forecasts for countries such as Spain will help ease the situation, unemployment remains unacceptably As a consequence of the economic downturn, high. Boosting gainful job opportunities remains an unemployment rates have increased sharply overall priority for Europe, and for that, more robust in Europe. Only a few Member States, notably economic growth throughout the EU is needed. ▶ Figure I-1-3 Unemployment rates, 2014 and compound annual growth, 2007-2014 Figure I-1-3 Unemployment rates, 2014 and compound annual growth, 2007-2014 30 25 20 25 15 20 10 15 5 10 0 5 -5 0 -10 (1) (2) Unemployment rate, 2014 Unemployment rate - compound annual growth (%), 2007-2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Science, Research and Innovation Performance of the EU 2016 Data: Eurostat, DG Economic and Financial Affairs, OECD Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies (1) (2) Notes: AT, UK, TR: 2013. AT, UK, TR: 2007-2013; IL: 2011-2014. Data: Eurostat, DG Economic and Financial Affairs, OECD (1) (2) (3) Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. EU: Croatia is not included. IS, NO, CH, TR, IL, JP, KR: 2013. The GDP gap and GDP growth gap between than the 1.4% average of the long-term trend the EU and the United States is largely driven from 1995 to 2014. In the United States, it by a gap in labour productivity that continues grew at 1.9%. Japan’s labour productivity also to increase, most notably against the most grew faster during this period than in the EU, advanced European economies. albeit below the United States rates, at 0.9%, and South Korea’s increased briskly at 3.8%, The importance of productivity as a key driver outperforming all countries and accelerating of sustained economic growth and solidification their convergence towards the United States. of the recovery in Europe has been identified by several studies, such as ‘The Future of Productivity’ The aggregate figures mask significant differences (8) by the OECD . Against this backdrop, labour across Member States. Some countries score productivity in the EU is around 15 percent above the United States, such as Luxembourg, or lower than in the United States and this gap are close to it, such as the Netherlands, Belgium has increased in the past few years. Labour or Ireland. Yet for many countries the gap productivity in the EU grew at an average annual remains particularly wide. However, the dynamics rate of 0.6% from 2007 to 2014, a lower rate of the past few years have shown an increasing (8) http://www.oecd.org/economy/the-future-of-productivity.htm South Korea Japan United States EU Austria Germany Malta Luxembourg Czech Republic Denmark Romania Estonia Netherlands United Kingdom Hungary Sweden Belgium Finland Poland Slovenia France Lithuania Latvia Ireland Bulgaria Italy Slovakia Portugal Cyprus Croatia Spain Greece Norway Switzerland Iceland Israel Turkey Unemployment rate (%) Growth (%)20 Science, Research and Innovation performance of the EU divergence of the European leading economies challenge that many EU countries face, a trend and a convergence of some of the countries in that started around the mid-1990s. Central and Eastern Europe that are catching-up to the level of the US. More precisely, since the At the other end of the spectrum, several Central beginning of the crisis, among the advanced and Eastern European countries such as Romania, economies only Ireland managed to close part Poland, Bulgaria or Slovakia have managed to of the gap, while for countries such as Finland, outperform the United States in terms of labour the United Kingdom, or the Netherlands the productivity growth and decreased their labour gap widened. This emphasises the productivity productivity gaps with other European economies. (1) (1) ▶ Figure I-1-4 The gap in real labour productivity (GDP per hour worked ) between each country and Figure I-1-4 The gap in real labour productivity (GDP per hour worked ) between each country the United States, 2014 and the United States, 2014 (2) EU Japan South Korea Luxembourg Netherlands Belgium Ireland Germany France Denmark Sweden Austria United Kingdom Finland Spain Italy Slovenia Cyprus Slovakia Czech Republic Greece Malta Portugal Lithuania Estonia Poland Hungary Latvia Bulgaria Romania Norway Switzerland Iceland Israel Turkey -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 (3) Gap with the United States in real labour productivity, 2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs, OECD Science, Research and Innovation Performance of the EU 2016 (1) (2) (3) Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. EU: Croatia is not included. IS, NO, CH, TR, IL, JP, KR: 2013. Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs, OECD (1) (2) (3) Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. EU: Croatia is not included. IS, NO, CH, TR, IL, JP, KR: 2013.I-1. General economic outlook 21 1) Figure I-1-5 The gap in compound annual real growth in labour productivity (GDP per hour worked( ) (1) ▶ Figure I-1-5 The gap in compound annual real growth in labour productivity (GDP per hour worked ) between each country and the United States, 2014 between each country and the United States, 2014 South Korea Japan (2) EU Romania Poland Lithuania Bulgaria Slovakia Estonia Spain Ireland Latvia Hungary Portugal Austria Czech Republic Germany Cyprus France Netherlands Denmark Slovenia Sweden Belgium United Kingdom Italy Finland Malta Luxembourg Greece Israel Iceland Turkey Switzerland Norway -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 Gap with the United States in compound annual real growth (%) in labour productivity, (3) 2007-2013 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs, OECD (1) (2) (3) Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. EU: Croatia is not included. IS, NO, CH, TR, IL, JP, KR: 2013. Science, Research and Innovation Performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: EurosSome European countries hav tat, DG Economic and Financial e managed Affairs, OEC D rates, but this was at the expense of millions of (1) (2) (3) to raise their labour productivity during the jobs, which evidenced an inability to raise labour Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. EU: Croatia is not included. IS, NO, recession, but at the expense of employment productivity and boost job creation at the same CH, TR, IL, JP, KR: 2013. loss, which does not provide a long-term time. Among the most advanced economies, solution to the need to raise productivity and countries such as Germany or Austria managed employment levels. to slightly raise both labour productivity and employment at the same time, while Poland and During the economic downturn, some Western Romania are examples of countries that also European economies such as Spain or Portugal managed to do this among Central and Eastern managed to increase their labour productivity European countries.22 Science, Research and Innovation performance of the EU (1) (1) Figure I-1-6 Real- labour productivity versus employment rates - compound annual growth, ▶ Figure I-1-6 Real labour productivity versus employment rates - compound annual growth, 2007-2013 2007-2013 4.0 KR PL RO 3.0 LT BG 2.0 ES SK IE EE US LV PT IL JP IS 1.0 HU (3) EU TR CY AT DE FR DK CH CZ SE 0.0 UK BE NL IT FI SI NO MT LU EL -1.0 -2.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 (2) Employment rates - compound annual growth (%), 2007-2013 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs, OECD Science, Research and Innovation Performance of the EU 2016 (1) (2) (3) Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. FR, NL, AT, UK: 2007-2012. EU: Croatia is not included. Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs, OECD (1) (2) (3) Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. FR, NL, AT, UK: 2007-2012. EU: Croatia is not included. There are no inherent trade-offs between high force, or vice-versa, do countries need to labour productivity and high employment, even suffer low productivity rates in order to provide if some adjustment periods may be necessary employment to large segments of the population? to move from a middle to a high-income The evidence suggests that there is no inherent economy, provided the right mix of investment trade-off, and there are several countries where and market conditions are put in place. high levels of productivity coexist with low levels of unemployment. At the same time, the cases The recent dynamics in the relationship between of Spain and Greece, that suffer from high labour productivity and unemployment rates levels of unemployment and medium-low levels has cast questions about the nature of the of productivity, seem to suggest that in some relationship and the existence of potential cases, the transition from low productivity to trade-offs. In other words, do countries need to higher productivity may take a temporary toll on sacrifice high levels of employment in order to employment, unless the right set of conditions raise the productivity of the employed labour are put in place that allow both to be achieved. (1) (2) Labour productivity -compound annual growth (%), 2007-2013I-1. General economic outlook 23 (1) ▶ Figure I-1-7 Labour productivity versus unemployment rates, 2014 (1) Figure I-1-7 Labour productivity versus unemployment rates, 2014 60 NO LU 55 US 50 BE NL IE 45 DE FR DK AT SE 40 CH FI IS (3) ES EU UK 35 IT JP SI 30 IL CY SK KR CZ EL 25 PT LT EE TR MT 20 LV PL HU RO BG 15 10 0 5 10 15 20 25 30 (2) Unemployment rate, 2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs, OECD (1) (2) (3) Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. AT, UK, IS, NO, CH, TR, IL, JP, KR: 2013. EU: Croatia is not included. Science, Research and Innovation Performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, DG Economic and Financial Affairs, OECD Boosting labour productivity depends on the Countries such as Sweden, Finland, or the (1) (2) Notes: GDP per hour worked in PPS€ at 2005 prices and exchange rates. AT, UK, IS, NO, CH, TR, IL, JP, ability of national economies to increase United Kingdom that led and outperformed the (3) KR: 2013. EU: Croatia is not included. the amount of capital available per worker, United States in terms of labour productivity i.e. capital deepening, and the efficiency in gains thanks to multifactor productivity increases the combination of the production factors, in the early 2000s, drastically changed patterns i.e. multifactor productivity. Since the crisis, during the recession with some remarkable falls investment in capital has been low in most since then. Labour productivity gains have been EU countries, and multifactor productivity meagre in most Western European countries for growth flat or negative, except for Ireland. which data exist for this decomposition analysis. Although some progress was achieved, such as While capital investments and multifactor in Spain or Portugal, this was driven by higher productivity in the EU advanced at a similar pace amounts of available capital per employed to the United States and Japan around the turn worker, due to the high loss of jobs. The only of the millennium, resulting in rather comparable exception to this rule was Ireland, despite being results in terms of labour productivity gains, one of the first countries that was severely hit the recession of the past few years has taken a by the downturn. particular high toll not only on the levels of capital investment, as previously stated, but also on the factors that drive multifactor productivity growth. (2) Labour productivity, 201424 Science, Research and Innovation performance of the EU Figure I-1-8 Capital deepening, multifactor productivity and labour productivity -average annual real growth 2001-2007 ▶ Figure I-1-8 Capital deepening, multifactor productivity and labour productivity - average annual real growth Figure I-1-8 Capital deepening, multifactor productivity and labour productivity -average annual real growth 2001-2007 2001-2007 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 2007-2011 2007-2011 2007-2011 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 Capital deepening Multifactor productivity growth Labour productivity growth Capital deepening Multifactor productivity growth Labour productivity growth Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: OECD, DG Research and Innovation Science, Research and Innovation Performance of the EU 2016 (1) Notes: EU 2001-2007 was estimated by DG Research and Innovation and includes: BE, DK, DE, IE, ES, FR, IT Science, Research and Innovation P , NL, A erform T, PT anc , FI, SE, UK. e of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies (2) EU 2007-2011 was estimated b Source: DG Research and Innovay DG Research and Inno tion - Unit for the Analysis vation and includes: BE, DK, DE, IE, ES, FR, IT and Monitoring of National Research Policies , NL, A T , PT , FI, SE. Data: OECD, DG Research and Innovation Data: OECD, DG Research and Innovation (1) Notes: (1)EU 2001-2007 was estimated by DG Research and Innovatrion and includes: BE, DK, DE, IE, ES, FR, IT, NL, AT, PT, FI, SE, UK. Notes: EU 2001-2007 was estimated by DG Research and Innovatrion and includes: BE, DK, DE, IE, ES, FR, IT, NL, AT, PT, FI, SE, UK. (2) (2)EU 2007-2011 was estimated by DG Research and Innovatrion and includes: BE, DK, DE, IE, ES, FR, IT, NL, AT, PT, FI, SE. EU 2007-2011 was estimated by DG Research and Innovatrion and includes: BE, DK, DE, IE, ES, FR, IT, NL, AT, PT, FI, SE. During the recession, multifactor productivity that performed relatively strongly during the growth has been particularly poor in the most 1995-2007 period, largely thanks to development advanced European economies, while in Japan, of the ICT sectors, began to trend negatively, as the United States, and notably, South Korea, it was also the case for Italy and Denmark, both has grown steadily. countries already suffering from low multifactor productivity growth rates since the mid-1990s, Long-term multifactor productivity trends and for the Netherlands, Belgium, France and show a persistent growth gap between Sweden. Only a handful of countries managed the United States and Japan and the most to slightly improve their performance, although advanced European economies for which at much slower pace than the United States or data exist. In particular, it is worth noting that South Korea, countries that showed relentless since the beginning of the economic recession, improvement in the past two decades. countries such as Finland or the United Kingdom South Korea South Korea United States United States (1) EU (1) EU Japan Japan Sweden Sweden Finland Finland Ireland Ireland United Kingdom United Kingdom Austria Austria South Korea South Korea Netherlands Netherlands United States United States Germany Germany (2) EU (2) France EU France Japan Japan Belgium Belgium Denmark Denmark Sweden Sweden Portugal Portugal Spain Finland Spain Finland Italy Italy Ireland Ireland Austria Austria Switzerland Netherlands Switzerland Netherlands Germany Germany France France Belgium Belgium Denmark Denmark Portugal Portugal Spain Spain Italy Italy Switzerland Switzerland % % % %I-1. General economic outlook 25 Figure I-1-9 Multifactor productivity -average annual growth, ▶ Figure I-1-9 Multifactor productivity - average annual growth, 1995-2007 and 2007-2012 1995-2007 and 2007-2012 South Korea United States Japan Ireland Spain Austria Germany Portugal Sweden France Belgium Netherlands Denmark Italy Finland United Kingdom Switzerland -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 (1) Average annual growth (%), 2007-2012 Average annual growth (%), 1995-2007 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Science, Research and Innovation Performance of the EU 2016 Data: OECD (1) Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Note: DK, NL, PT, UK, CH: 2007-2011. Data: OECD (1) Note: DK, NL, PT, UK, CH: 2007-2011. While there are many factors driving multifactor the use of labour and capital in a country. In productivity, for most advanced economies, addition, and notably for countries that benefit innovation and innovation-related investments, from high levels of prosperity and fairly good such as R&D, ICT, or skills development, are crucial. framework conditions, as argued in the Global Competitiveness Report series of The World (9) Multifactor productivity growth can be driven Economic Forum , research, innovation, skills by many different factors that can range from and technological development are of paramount the functioning of the institutional set-up, the importance for multifactor productivity growth. abundance and quality of the infrastructure network or the functioning of the markets that While it is always difficult to properly measure allow for an efficient allocation of resources complex phenomena such as multifactor towards more productive activities. productivity growth or innovation, the relationship between private R&D investment, as a crude Therefore, structural reforms and better proxy of innovation capacity, and multifactor regulatory and institutional frameworks are productivity growth shows a positive relationship crucial to raise the combined efficiency in between the concepts. (9) www.weforum.org/gcr 26 Science, Research and Innovation performance of the EU Figure I-1-10 Business R&D intensity, 1995 versus average annual growth in multifactor ▶ Figure I-1-10 Business R&D intensity, 1995 versus average annual growth in multifactor productivity, 1995-2007 productivity, 1995-2007 2.5 SE 2.0 JP US CH KR DE 1.5 FR FI BE UK DK AT NL 1.0 IE IT 0.5 ES PT 2 R = 0.1838 0.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Multifactor productivity - average annual growth (%), 1995-2007 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, OECD (1) Note: CH: 1996; AT: 1998. Science, Research and Innovation Performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, OECD (1) Against this backdrop, the next sections of Part I and framework conditions for the EU and its Note: CH: 1996; AT: 1998. of this Report will assess the European R&I Member States to create effective innovation landscape within a global context and identifies systems able to sustain productivity, economic the strengths and persistent challenges in terms growth, and gainful job opportunities. of knowledge investments, knowledge flows, (1) Business RD intensity, 1995I-2. Investment in knowledge and knowledge flows 27 2. Investment in knowledge and knowledge flows Investing in knowledge-generation activities, such a role to play in this context. The public R&D system as R&D, skills development, or Information and (composed of higher education institutions and Communication Technologies (ICTs) is crucial to other public organisations performing R&D) plays support the development of inventions and enable a key role in generating the knowledge and talents the development and commercialisation of new needed by innovative firms. But it is only through products and services. In addition, as important business investment in R&D that the expected as investing in knowledge creation, is creating a impact of R&D can fully materialise: by generating system that facilitates the effective circulation, new, innovative and greener products, processes and diffusion, and use of this knowledge. Intensive services, business R&D enables higher labour and collaboration facilitates knowledge flows across total factor productivity, industrial competitiveness firms and with universities and public research and efficiency in the use of resources, as well as organisations, which is associated with higher rates reduced environmental impacts. It is thus essential of knowledge diffusion. Moreover, in an increasingly that public policies, on top of aiming to strengthen multipolar world of knowledge creation, openness the public R&D system, also address the broader and strong collaboration with foreign partners is the innovation eco-system and put in place the right key to tapping into new sources of knowledge. framework conditions to enable business R&D and innovation to flourish. Against this backdrop, this section will assess the levels of investment in R&D in the EU, both in the Against this backdrop, the first part of this chapter private and public sectors, its ability to foster talent will aim to assess to what extent the EU as a and skills, and how it fares in developing and using whole is on track (or not) towards its R&D intensity ICTs to harness the benefits of the digital economy. target. It will look successively at the expenditure Finally, it will also provide an overview of the trends in the public R&D and in the business knowledge flows, either local or international. sectors and will compare those with the trends in other major economic powers, before synthesising Investment in R&D the situation of the EU vis-à-vis its target and its place in the changing global R&D landscape. In EU R&D investment in the global context the second part of this chapter, progress will be assessed and compared at the Member State By setting the goal of reaching a R&D intensity level, again in three steps: public R&D expenditure, (i.e. R&D expenditure as a percentage of GDP) business R&D expenditure, and the situation vis-à- of 3% GDP by 2020, as one of the five headline vis the national 2020 R&D intensity targets that targets of its Europe 2020 strategy, the EU has most Member States have set taking into account put research and innovation at the heart of its the specificities of their situations. economic strategy. With a EU public R&D intensity reaching 0.72% The 3% target acknowledges the essential role GDP in 2014 vs 0.63% in 2007, the EU public that R&D investments play in triggering smart R&D system emerges slightly stronger from and sustainable growth and in addressing societal the crisis period. The major Asian economic challenges, as well as the fact that the EU lags powers also continued to strengthen their significantly behind other leading regions on this public R&D systems. indicator. Both public R&D and business R&D have 28 Science, Research and Innovation performance of the EU ▶ Figure I-2-1 Evolution of Public R&D intensity, 2000-2014 Figure I-2-1 Evolution of Public R&D intensity, 2000-2014 0.9 (1) South Korea (1) South Korea (2) Japan (2) Japan EU EU 0.7 (3) (3) United States United States (4) China 0.5 (4) China 0.3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, OECD Science, Research and Innovation Performance of the EU 2016 (1) (2) Notes: KR: There is a break in series between 2007 and the previous years. JP: There is a break in series between 2008 and Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies (3) the previous years. US: (i) Government intramural expenditure on R&D (GOVERD) refers to federal or central government only; (ii) Higher education expenditure on R&D (HERD) does not include most or all capital expenditure; (iii) There is a break in series Data: Eurostat, OECD (4) between 2003 and the previous years. CN: There is a break in series between 2009 and the previous years. Notes: (1)KR: There is a break in series between 2007 and the previous years. (2)JP: There is a break in series between In 2008-2009, the continued increase of public While increases in public R&D intensity in the 2008 and the previous years. (3)US: (i) Government intramural expenditure on R&D (GOVERD) refers to federal or central government only; (ii) Higher education expenditure on R&D (HERD) does not include most or all capital R&D expenditure in the EU within the context of 2008-2009 period have been a generalised expenditure; a depressed GDP allowed a significant increase phenomenon across the major economic powers in public R&D intensity, as visible in Figure I-2-1. (with South Korea overtaking the US and Japan (iii) There is a break in series between 2003 and the previous years. (4)CN: There is a break in series between 2009 and the previous years. In the following years, public R&D expenditure in that period), trends have been more divergent evolved in line with GDP, resulting in a stable since 2011, with a decline in the US contrasting public R&D intensity. In total, with EU public R&D with the significant increases in South Korea, intensity reaching 0.72% in 2014 vs 0.63% in Japan, and China. 2007, the public R&D system emerges stronger from the crisis period (for the EU as whole, EU business R&D intensity has been on a quasi- while diverging evolutions occurred at the continuous and very slow positive trend since Member State level, as analysed below). This 2005. Despite a more positive trend than in the represents an increase in the level of expenditure US and Japan over the crisis period, it remains of 15% in real terms from 2007 to 2014 (with far below the business R&D intensity of these more than two-thirds of this increase made during two countries and the 2013 figures point to a the 2007-2009 period). 69% of the increase in re-increasing gap. The most striking evolutions public R&D expenditure over 2007-2012 is the are, however, outside this trio with the result of increased national public funding, while continued and very rapid growth of business 20% came from increased ‘funding from abroad’ R&D intensity in China, which overtook the EU (the bulk of this from the EU budget: Framework in 2009, and in South Korea, which overtook programme and Structural Funds). Japan in 2010. Public R&D intensity I-2. Investment in knowledge and knowledge flows 29 ▶ Figure I-2-2 Evolution of business R&D intensity, 2000-2014 Figure I-2-2 Evolution of business R&D intensity, 2000-2014 3.5 (1) South Korea 3.0 Japan 2.5 (2) United States 2.0 (3) China 1.5 EU 1.0 0.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, OECD Science, Research and Innovation Performance of the EU 2016 (1) (2) Notes: KR: There is a break in series between 2007 and the previous years. US: Business enterprise expenditure on R&D Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies (3) (BERD) does not include most or all capital expenditure. CN: There is a break in series between 2009 and the previous years. Data: Eurostat, OECD Notes: (1)KR: There is a break in series between 2007 and the previous years. (2)US: Business enterprise expenditure on R&D (BERD) does not include most or all capital expenditure. (3)CN: There is a break in series between 2009 and the With only a limited halt after the initial shock of the business R&D intensities of these countries in previous years. the crisis, EU business R&D intensity has been 2009-2010 as shown in Figure I-2-2 (and thus on a quasi-continuous and very slow positive a reduction in the business R&D intensity gap of trend since 2005 (when it bottomed out at the EU vis-à-vis the US and Japan). In real terms, 1.11% GDP), reaching 1.30% GDP in 2014. This while business R&D expenditures grew by 12% in represents an increase in the level of expenditure the EU from 2007 to 2012, they grew by only 4% of 28% in real terms between 2005 and 2014. in the US and declined by 6% in Japan. However, A large range of manufacturing and service the 2013 figures point to a significant renewed sectors contributed to this increase, with ‘Motor dynamics of business R&D expenditures in the US vehicles’ and ‘Other transport equipment’ being and Japan (+ in 5% real terms in both cases) while the most important contributors to the increase in the EU we do not see any similar acceleration in business R&D expenditure over the period (+1% in real terms in 2013, +2% in 2014). from 2008-2012 on the manufacturing side, and ‘Professional, scientific and technical activities’ It is, however, outside this trio that the most and ‘Computer programming, consultancy and striking evolutions can be seen: South Korea, information service activities’ on the services having doubled its business R&D intensity since side. As analysed in Chapter 5, two phenomena 2000, overtook the US in 2003 and Japan in played a role; on one hand, many sectors 2010. China, having trebled its business R&D became more R&D-intensive (for instance intensity since 2000, overtook the EU in 2009. ‘Other transport equipment’, but also several Profound structural changes in these economies low-tech sectors) and, on the other hand, some through the rapid growth of several R&D- R&D-intensive sectors (such as ‘Motor vehicles’ intensive manufacturing sectors explain these and ‘Pharmaceuticals’) were more resilient dramatic evolutions in business R&D intensities. throughout the crisis and increased their shares (in value-added) in the EU economy. Despite the positive trends in both public and private R&D intensities over the 2007-2014 The impact of the crisis on business R&D period, the EU is not on track to reach its 3% investment has been much more important in the R&D intensity target by 2020. In 2013, China US and Japan than in the EU, leading to a drop in overtook the EU in terms of total R&D intensity. Business R&D intensity30 Science, Research and Innovation performance of the EU ▶ Figure I-2-3 Evolution of R&D intensity, 2000-2014 Figure I-2-3 Evolution of R&D intensity, 2000-2014 4.5 (1) South Korea 4.0 (2) Japan 3.5 3.0 (3) United States 2.5 (4) China 2.0 EU 1.5 1.0 0.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, OECD Science, Research and Innovation Performance of the EU 2016 (1) (2) Notes: KR: There is a break in series between 2007 and the previous years. JP: There is a break in series between 2008 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies (3) and the previous years. US: (i) R&D expenditure does not include most or all capital expenditure; (ii) There is a break in series (4) Data: Eurostat, OECD between 2003 and the previous years. CN: There is a break in series between 2009 and the previous years. Notes: (1)KR: There is a break in series between 2007 and the previous years. (2)JP: There is a break in series between 2008 and the previous years. (3)US: (i) R&D expenditure does not include most or all capital expenditure; (ii) There is a break The positive trends in both public and private The world is becoming more R&D-intensive and in series between 2003 and the previous years. (4)CN: There is a break in series between 2009 and the previous years. R&D intensities over the 2007-2014 period the relative weight of the EU in this new global allowed total EU R&D intensity to increase from R&D landscape is decreasing, mainly due to 1.78% in 2007 to 2.03% in 2014: this contrasts the rapid rise of China. with the stagnation of EU R&D intensity over the period from 2000-2007 (EU R&D intensity was Figure I-2-4 shows the continuous increase in at 1.79% in 2000). However, the prolongation of R&D expenditure through which the world is the 2007-2014 trend would lead the EU to miss becoming more R&D-intensive: the crisis entailed its 2020 3% R&D intensity target by far: it would only a very temporary and limited slowdown in result in a level of only 2.28% in 2020. In fact, in this trend. While all major regions have increased order to meet the 2020 target of 3%, the annual their R&D investments, the most impressive growth rate of EU R&D intensity would need increase is in China. to more than triple compared to the average growth rate over the 2007-2014 period (6.7% (10) vs 1.9%) . In addition, the most recent trend seems to point to a deceleration: in 2014, for the first time since 2007, EU R&D intensity did not increase, with a status quo at 2.03%. (10) While we need to bear in mind that the growth rate in R&D intensity over the 2007-2014 period was boosted by a depressed GDP. R&D intensity I-2. Investment in knowledge and knowledge flows 31 ▶ Figure I-2-4 Evolution of world GERD in real terms (PPS€ at 2005 prices and exchange rates), 2000-2013 Figure I-2-4 Evolution of World GERD in real terms (PPS at 2005 prices and exchange rates), 2000-2013 1250 Rest of the world (1) BRIS 1000 China 750 Developed Asian Economies (JP+KR+SG+TW) 500 United States 250 EU 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Science, Research and Innovation Performance of the EU 2016 Data: Eurostat, OECD, UNESCO Source: DG Research and Inno (1) (2) vation - Unit for the Analysis and Monitoring of National Research Policies Notes: BR+RU+IN+ZA. Elements of estimation were involded in the compilation of the data. Data: Eurostat, OECD, UNESCO Notes: (1)BR+RU+IN+ZA. (2)Elements of estimation were involved in the compilation of the data. As is visible in Figure I-2-5, this leads to a in world R&D expenditure is mainly due to the changing global R&D landscape, where the rapid rise of China, which more than quadrupled relative weight of the EU is decreasing. While in its share, from 4.6% in 2000 to 20% in 2013. 2000, the EU and US together still represented The decrease in the US share since 2000 has nearly two-thirds of global R&D expenditure, even been slightly more pronounced than that in 2013, more than half the global R&D of the EU, from 37.6% to 27.2% in 2013, while expenditure was spent elsewhere. In 2013, the the share of the developed Asian economies EU represented 20.4% of total R&D expenditure has eroded from 18.1% in 2000 to 16% in in the world, measured in PPS€ at 2005 prices 2013 (in this group of economies, the decrease and exchange rates, down from 25.8% in 2000. in Japan’s share has been partly compensated The continuously decreasing share of the EU for by the increase in South Korea’s share). PPS€2005 (billions) Figure I-2-5 % distribution of world GERD(1), 2000 and 2013 32 Science, Research and Innovation performance of the EU (1) ▶ Figure I-2-5 % distribution of world GERD , 2000 and 2013 2000 2013 Rest of the world Rest of the world 7.7% 7.8% (2) BRIS 6.2% China (2) BRIS 4.6% 8.6% EU EU 20.4% 25.8% China Developed Asian 20.0% (3) Economies 18.1% United States United States 27.2% 37.6% Developed Asian (3) Economies 16.0% Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat, OECD, UNESCO (1) (2) (3) Notes: The % shares were calculated from estimated values in current PPS€. BR+RU+IN+ZA. JP+KR+SG+TW. R&D investments in the Member States Denmark and Germany and in some economies that are catching-up, such as Estonia and the Science, Research and Innovation Performance of the EU 2016 Trends in public R&D intensity over the crisis Czech Republic. However, in Romania, Bulgaria, Source: DG Research and Innovation - Unit for the Analysis and Monitoring of Natio- period hav nal Research Policies e been very divergent between Croatia and Hungary, reduced funding f or Member States. Remarkable growths in public R&D risks delaying considerably Data: Eurostat, OECD, UNESCO public R&D intensity have been observed in the transformation of these countries into some advanced economies such as those of Notes:(1)The % shares were calculated from estimated values in current PPS€. knowledge-based economies. (2)BR+RU+IN+ZA. (3)JP+KR+SG+TW. Figure I-2-6 Public R&D intensity, 2014 and compound annual growth, 2007-2014 ▶ Figure I-2-6 Public R&D intensity, 2014 and compound annual growth, 2007-2014 13 LU SK 11 MT 9 CZ 7 EE DK 5 BE PL DE AT SE 3 LT LV EU CY 1 ES IT FR FI NL IE BG PT -1 SI UK HR -3 HU -5 -7 RO 0.2 0.4 0.6 0.8 1.0 1.2 Public R&D intensity, 2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat (1) (2) Notes: PT: 2008-2013. EL: Greece is not included on the graph because valid data are available only for 2011-2014. Science, Research and Innovation Performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat Notes:(1)PT: 2008-2013. (2)EL: Greece is not included on the graph because valid data are available only for 2011-2014. (1) Public R&D intensity - compound annual growth (%), 2007- 2014 I-2. Investment in knowledge and knowledge flows 33 Many Member States which already had a relatively all countries that were strongly hit by the crisis and strong public R&D system before the crisis continued which experienced very significant drops in GDP, to increase their investments throughout the crisis the trend in public expenditures is more negative period, with notably remarkable evolutions in in real terms than in percentage of GDP. Second, Denmark and Germany, as is visible in Figure I-2-6. in line with what was observed at the EU level, Several Central and Eastern European countries (in public R&D expenditure increased significantly in particular Slovakia, Estonia, and the Czech Republic) these countries between 2007 and 2009, and thus as well as Malta also display strong growth rates in comparing 2014 with 2007 does not allow for one public R&D intensity since 2007, thanks in particular to distinguish the more important drop compared to the significant mobilisation of European to 2009. Comparing 2014 to 2009, public R&D Structural Funds, as analysed in Part II. As a result, expenditure decreased in Slovenia in real terms by the Estonian and Czech public R&D intensities are 15%, in Spain by 14% and in Ireland by 14%. now higher than the EU average. Trends in business R&D intensity over the However, the most striking -and worrying- trend crisis period are also divergent between is that some Member States which already had a Member States. While the strongest growth rates public R&D intensity well below the EU average, such of business R&D intensities can be found among as Bulgaria, Romania, Croatia and Hungary, have the economies that are catching-up in Central experienced budget cuts in their public R&D in recent and Eastern Europe, there is also a group of years instead of building R&I capacities through advanced economies which continue to progress more investments. Furthermore, the negative from already relatively high pre-crisis levels of trends in some Member States with a strong public business R&D intensities (Belgium, Denmark, R&I system, such as the United Kingdom, are Austria, Germany, and France). Negative trends worrying as they risk undermining their strengths. are found in various types of situations: in Finally, the below-average trends for Ireland, Member States with very high levels of business Slovenia and Spain are to be noted as they are R&D intensities (Finland and Sweden), moderate even more negative than would appear at first levels (notably Luxembourg and Spain) and very glance due to two phenomena. First, as these are low levels (Romania and Cyprus). Figure I-2-7 Business R&D intensity, 2014 and compound annual growth, 2007-2014 ▶ Figure I-2-7 Business R&D intensity, 2014 and compound annual growth, 2007-2014 24 BG 20 16 PL 12 HU SK 8 SI CZ MT BE LT LV EE 4 IT IE AT FR EU HR DE DK 0 UK PT CY SE FI ES NL -4 RO -8 LU -12 0.0 0.4 0.8 1.2 1.6 2.0 2.4 Business R&D intensity, 2014 Science, Research and Innovation performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat (1) (2) Notes: Science, Research and Inno ES, SI: 2008-2014. vation Perf EL: Greece is not included on the graph because valid data a ormance of the EU 2016 re available only for 2011-2014. Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: Eurostat Notes: (1)ES, SI: 2008-2014. (2)EL: Greece is not included on the graph because valid data are available only for 2011-2014. Business R&D intensity - compound annual growth (%), (1) 2007- 201434 Science, Research and Innovation performance of the EU As shown in Figure I-2-7, the strongest growth Positive growth rates starting from an average or rates of business R&D intensity over the high level of business R&D investments, as seen 2007-2014 period can be observed in the in several advanced EU economies (Belgium, economies that are catching-up in Central and France, Denmark, Austria and Germany), can be Eastern Europe (Bulgaria, Poland, Slovakia, more safely interpreted as reflecting the impact Hungary and Slovenia). The situations and of the policies put in place to stimulate business developments in business R&D in this group of R&D investment, such as R&D tax incentives and countries are, however, of a diverse nature. For ‘Competitiveness poles’ in Belgium and France, instance, while foreign direct investments in R&D combined with the opportunities linked to their play an increasing role in Poland, as reflected in industrial specialisations (e.g. ‘Pharmaceuticals’ the rise of the share of foreign-affiliated R&D in in Belgium and Denmark, ‘Motors vehicles’ business R&D expenditure from 31% in 2007 to in Germany). In contrast, negative trends in 45% in 2011, in Slovenia this share remained several Member States on the Western side of stable (29% in 2011 vs 28% in 2007). In general, the EU (such as Luxembourg and Spain) put strong growth rates from very low starting points into question the effectiveness of their policy have to be interpreted with caution; the limited mixes to leverage business R&D. The two amounts involved may be linked to a very limited Member States with the highest business R&D number of investments and/or may be linked to intensities, Finland and Sweden, also experienced particular sectorial phenomena instead of truly negative trends, linked to the difficulties in their representing the overall attractiveness of the ICT sectors. country in terms of R&D investments. This is the case in Bulgaria, where the increase has been Through notably increased use of R&D fiscal concentrated in one sector (R&D services) and incentives, the level of public support for may be linked to clinical trials carried out for business R&D has increased throughout the foreign pharmaceutical companies. crisis period in many Member States. (1) ▶ Figure I-2-8 Public support for business R&D, 2007 and 2013 (1) Figure I-2-8 Public support for business R&D, 2007 and 2013 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 Direct government funding of BERD Indirect government support through R&D tax incentives (2) No breakdown available Total financial support, 2007 Science, Research and Innovation performance of the EU 2016 Science, Research and Innovation Performance of the EU 2016 Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Source: DG Research and Innovation - Unit for the Analysis and Monitoring of National Research Policies Data: OECD (STI Scoreboard, 2015) (1) Data: OECD (STI Scoreboard, 2015) Notes: For ES, FR, PT, UK and NO, preliminary R&D tax incentive estimates are reported for 2013 (or closest year). For BE, IE, Notes: (1)For ES, FR, PT, UK and NO, preliminary R&D tax incentive estimates are reported for 2013 (or closest year). For BE, IE, ES, CH, IL and ES, CH, IL and US values refer to 2012. For IS values refer to 2011. Estimates of direct funding for BE, FR, IT and PT are based on imputing the share of direct go US values refer to 2012. For IS values ref vernment-funded BERD in the previous year to the current ratio of BERD to GDP er to 2011. Estimates of direct funding for BE, FR, IT and PT are based on imputing the share of . For AT, the 2011 share is used for 2013. In AT, R&D tax incentive support is included in official estimates of direct government funding of business direct government-funded BERD in the previous year to the current ratio of BERD to GDP. For AT, the 2011 share is used for 2013. In AT, R&D R&D. It is removed from direct funding estimates to avoid double counting. DE, EE, SE and CH did not provide information on tax incentive support is included in official estimates of direct government funding of business R&D. It is removed from direct funding expenditure-based R&D tax incentives for 2013. For IL, the R&D component of incentives cannot be identified separately at present. estimates to avoid double counting. DE, EE, SE and CH did not provide information on expenditure-based R&D tax incentives for 2013. For IL, No data on the cost of expenditure-based R&D tax incentive support are available for PL. Estimates refer to the cost of incentives the R&D component of incentives cannot be identified separately at present. No data on the cost of expenditure-based R&D tax incentive for business expenditures on R&D, both intramural and extramural, unless otherwise specified. Direct support values refer only to support are available for PL. Estimates refer to the cost of incentives for business expenditures on R&D, both intramural and extramural, (2) intramural R&D expenditures. CZ, IE, ES, FR, HU, PT, UK, NO, CH, US, JP: 2006; IT, TR: 2008; EL, NL, SK, IL, CN: Not available. unless otherwise specified. Direct support values refer only to inrtramural R&D expenditures. (2)CZ, IE, ES, FR, HU, PT, UK, NO, CH, US, JP: 2006; IT, TR: 2008; EL, NL, SK, IL, CN: Not available. South Korea United States Japan China France Slovenia Hungary Belgium Austria Ireland Czech Republic Netherlands United Kingdom Sweden Portugal Denmark Spain Estonia Germany Finland Greece Italy Poland Slovakia Iceland Israel Norway Turkey Switzerland %

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