Abstract not found

This paper develops a framework for testing discrete complementarities in innovation policy using European data on obstacles to innovation. We propose a discrete test of supermodularity in innovation policy leading to a number of inequality constraints. We apply our test to two types of innovation decisions: to innovate or not, and if so, by how much. We find that industries display a considerable amount of complementarity, with some industries being complementary across all obstacles. We also find that the lack internal human capital (skilled personnel) is complementary to all the other obstacles in almost all industries. In this sense, our results suggest that internal human capital is key for any innovation policy, insofar that it is complementary to all the other factors that might hamper innovation activities.

The purpose of this paper is to try and identify some of the factors behind the comparatively poor R&D performance of the UK in the 1990s, a decade when R&D intensity in the business sector declined consistently. We estimate an econometric model of R&D expenditure using a panel of UK manufacturing industries. Our results highlight the importance of industry characteristics such as sales and profitability, product market competition, macroeconomic factors such as real long-term interest rates and the real effective exchange rate, skilled labour, and the composition of R&D expenditure and funding. A rise in either the share of R&D funded by the government or the share of R&D undertaken by foreign firms is found to have a significant positive impact on the aggregate level of R&D expenditure.

This report was written with the assistance and advice of Annette Nellen, Professor of Accounting and Finance, San Jose State University, to whom we are very grateful for her help

The authors would like to thank Bhaswar Mukhopadhyay and Richard Simon for their help in preparing this manuscript and two referees for very constructive and helpful comments. We also acknowledge support from the C.V. Starr Center for Applied Economics of New York University.

This study identifies a clear need for government policy to address the widening R&D gap

This paper investigates the economic impact of the government's proposed new UK R&D tax credit. We measure the benefit of the credit by the effect on value added in the short and long_run. This is simulated from existing econometric estimates of the tax_price elasticity of R&D and the effect of R&D on productivity. For the latter we allow R&D to have an effect on technology transfer (catching up with the technological frontier) as well as innovation (pushing the frontier forward). We then compare the increase in value added to the likely exchequor costs of the program under a number of scenarios. In the long run the increase in GDP far outweighs the costs of the tax credit. The short run effect is far smaller with valueadded only exceeding cost if R&D grows at or below the rate of inflation.

Le CIRANO est une corporation privée à but non lucratif constituée en vertu de la Loi des compagnies du Québec. Le financement de son infrastructure et de ses activités de recherche provient des cotisations de ses organisations-membres, d’une subvention d’infrastructure du ministère de l’Industrie, du Commerce, de la Science et de la Technologie, de même que des subventions et mandats obtenus par ses équipes de recherche. La Série Scientifique est la réalisation d’une des missions que s’est données le CIRANO, soit de développer l’analyse scientifique des organisations et des comportements stratégiques. CIRANO is a private non-profit organization incorporated under the Québec Companies Act. Its infrastructure and research activities are funded through fees paid by member organizations, an infrastructure grant from the Ministère de l’Industrie, du Commerce, de la Science et de la Technologie, and grants and research mandates obtained by its research teams. The Scientific Series fulfils one of the missions of CIRANO: to develop the scientific analysis of organizations and strategic behaviour.

Investment in research and development may (with some probability) lead to reductions in a firm’s production cost. If the production-cost savings associated with successful research and development is freely disseminated to other firms as soon as it is realized, too few resources may be allocated to this input. In such an environment, subsidies to the public input can lead to optimal input use. Four alternative subsidy instruments are considered in this paper. Two are incremental subsidies and the others are conventional level subsidies. One of the incremental subsidies and one of the level subsidies crudely capture characteristics of incentive mechanisms used in the United States and Canada. A laboratory implementation of these instruments generally confirms that incremental subsidies are inferior to level subsidies.

This paper evaluates several well-known empirical studies of the cost-effectiveness of the research and experimentation (R&E) tax credit. Studies of the credit's effect during 1981-85 generally find weak evidence of cost-effectiveness. However, more recent studies focusing on a longer period conclude that the tax credit has induced an increase in R&E spending by an amount that is significantly greater than the foregone tax revenue. The independent analyses in the latter studies appear empirically well founded and their results are robust. Their individual conclusions that the R&E tax credit was cost-effective during the 1980s converge toward the same value—roughly $2.00 of induced R&E spending per dollar of revenue loss. R&E Tax Credit Page 1 I.