This project is co-funded by the European Union I3U “Investigating the Impact of the Innovation Union“ Kick off meeting - 10 March 2015 Boris Le Hir, Pierre Le Mouël, Paul Zagamé Venue: ISIS – Institute of Studies for the Integration of Systems Largo dei Lombardi, 4 00186 Rome, Italy This project is co-funded by the European Union

Overview of the project SEURECO: Mainly WP10 macro-sectoral economic modelling Dependante on WP9 European Innovation System Involved more lightly in WP1-WP8

Overview of the project

The sensitive mechanisms of NEMESIS to implementations of commitments Sensitive parameters for the innovation mechanisms R&D and other innovative assets decision Knowledge spillovers Performance of knowledge and other innovative assets Macroeconomic feedbacks Goods and Services markets Labour market – supply of high skilled Financing of innovative assets Lags: three periods for macrodynamics

I.1) R&D and other innovative assets decision In principle: endogenously calculated by model: Max value of firms NEMESIS But this is too simple and mechanical: Role of risk? Of institution? The econometric works show that the source and the way of financing matters a lot on R&D decision The role of other policies IU

I.1) R&D and other innovative assets decision What is important here is that all measures that modify the productivity of research either directly or indirectly (for instance by enhancing spillovers) will modify innovation decision For all these reasons, the endogenous innovation decision is very often “disconnected” and introduced exogenously in the model: Either based on results of econometric studies: Hall and Tool (2000); Van Pottelsberghe (2003); Aerts and Schmidt (2009); Or based on experts groups: ERA (2014) for instance The organization of research is very important for instance for an European action that enhances spillovers and transfer of best practices the additionallity is more important (cf ERA, FP, H2020) The origin of incentive is also important

I.2) Knowledge spillovers Intersectoral and international spillovers The evaluation of these spillovers had been improved by DEMETER project (Meijers and Verspagen 2010) The primary mechanism for assessing technology (or knowledge) flows are patent citations from EPO and USPTO The main idea is that cited sends a piece of knowledge to the citing patent and that each patent can be assigned to a sector and a country The result is a square matrix with country-sector combinations in the rows and columns How commitments achievement modify these spillovers?

I.3) Performance of knowledge Fully endogenous module: Aghion Howitt (1998); Ha Howitt (2005) etc. Long term rate of growth of productivity depends on the research intensity R/Y and other innovative assets intensity (Other intangible and ICT) Calibration use econometric works: Hall Mairesse Mohnen (2009) Rate of growth of the economy depends on macroeconomic feedbacks

II) Macro economic feedbacks

II.1) Goods and Services Markets At the end, the internal demand and competitiveness will be enhanced by: Process innovation (price decrease) Product innovation (quality for NEMESIS) All that enhances these effects will induce an increase of macroeconomic performance (structure of market, harmonization) All that jeopardizes these effects will induce a diminution of macroeconomic performance. It is the case for “inflationary pressures”. Several mechanisms can be at the origin of inflationary pressures; but two are more important: Labour market and especially for high skilled Financing of R&D expenditures

II.2) Labour market Supply of high skilled workers for research and innovation: If too much rigidity inefficiencyof research and innovation policy To link this elasticity of supply to commitments

II.3) Finance The way tof financing R&D and Innovation is important for the results (sentivity test with NEMESIS) The main parameters: The access to finance The sharing of finance The risk of finance

II.4) Lags From incentive to assets for innovation From assets to innovation From innovation to economic performance

III) Interaction with other WP   1 Decision on Innovation Inputs 2 Spillovers 1+2 Production of Innovation 3 Economic performances of innovation 4 G&S market 5 Labour market Needs for Modification of NEMESIS Exogeneous variables Parameters Behavioural equations Com. 1 Increase the supply of High skill of X% Yes No ⁞ Com. z Decrease the cost of R&D of R% Increase R&D investment of Z% Com. n Increase spillovers in Europe of N%

III) Interaction with other WP The role of European Innovation System To transfer the 34 Commitments In fewer entries for NEMESIS Quasi exhaustible on the information Avoiding overlapping and rigidities

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