Assessing the impact of innovation policies: a comparison between the Netherlands and Italy Elena Cefis and Rinaldo Evangelista (University of Bergamo, University of Camerino) The impact of innovation on growth and employment Rome, June 23, 2008 Università di Roma "La Sapienza”, Facoltà di Economia

Under-investigated topic Lack of systematic and reliable data & evidence Little evidence on Italy and the Netherlands International literature focuses on the impact of public support to business R&D (“additionality” issue) No conclusive answers (David et al., 2000; Quevedo, 2004)

Need of broadening the evaluation of innovation policies Beyond R&D… Beyond technological input…. Beyond short term effects

CIS indicators Public support to innovation Access to public support (yes/no) Type of incentive (Regional/local, National, European, EU FP) Innovation strategies and performances Type of innovation, tech. input & outputs Innovation expenditures (beyond R&D) sources of knowledge and external linkages objectives pursued obstacles to innovation Economic performances Growth of sales/employment Export propensity Productivity

CIS Data-sets used Firm level (NL & IT): 2) CIS3 (all sample - manufacturing) 3)Longitudinal CIS2-CIS3 (sub-sample of manuf. firms selected in both surveys) 1)CIS4: descriptive – aggregated figures

Issues addressed 1.What kind of “innovation policy models” are in place in Italy and the Netherlands? (mission vs diffuision; Ergas 1987; Cantner et al., 2001 ) - How many (innovating) firms do get a fianancial support? - What is the innovation profile of the firms receiving financial support? 2.What are the effects of innovation policies? In particular on: the resources devoted to innovation the innovation output the innovative behaviours of firms Are there additional effects?

The weaknesses of the Italian innovation system Specialization in medium and low-tech industries Dominant role of SMEs Low percentage of innovating firms Little R&D Dominant role played by process innovation

The Dutch innovation system Specialization in medium and high-tech industries Dominant role played by large firms (MNCs) High percentage of innovating firms Medium/High level of R&D Dominant role played by product innovations

CIS indicators used in the econometric firm- level analysis Presence of a public financial support (independent variable) Access to different types of public funds (regional, national, EU) (binary yes/no) Innovation performances (dependent variables) innovation expenditure per employee (INPUT) sales related to new products (new to the firm/market) (%) (OUTPUT) technological linkages (importance) Innovation strategy/profile (control factors) product/process innovation presence of intra-mural R&D Firm size Sector

Weaknesses of CIS data No possibility of identifying the exact timing of : - the strategic decision to invest on innovation -> the administrative approval of the funding -> the actual financial transfer -> time span of the innovation process (lag bw tech. input and output) cross-section nature of the data ->endogeneity problem No quantitative figures on the amount of the financial support received by firms: we have just a binary (yes/no) variable

CIS Data-sets used (firm-level) CIS3 ( ) – full sample very short time-lag bw the time firms get the incentives and the time when we observe/measure the innovation performances what do we estimate with these data? -> short term effects (although with severe endogeneity problems) -> innovative performance of the firms receiving public support CIS2-CIS3: longitudinal data-set (sub-sample) - 4 years time lag (more realistic…) -Measurement of the impact in terms of rates of change of innovation performance indicators (1996->2000) - >more reliable indications on the presence of “additional effects”

Conclusions Both Italy and the Netherlands are characterized by a “diffusion oriented” innovation policy model (differences with most of the other EU countries) Differences between the two systems: The Dutch model: - supports a rather stable group of (large) R&D performing firms - strong central Governance The Italian Model: - strongly oriented to support SMEs and process- oriented innovation activities - Governance of the system (???): at least two levels (National/Regional) badly coordinated

Limited impact: - more on the inputs than on outputs - short term rather than long-term effects - no/very limited additionality Limited structural/long term effectiveness - no effects on the long-terms behaviours and strategies of firms - no up-grading of the overall innovation profile of the industrial system Indications on the effects of innovation policy

What is the problem? Issues debated in Italy Timing and effectiveness of the evaluation & funding procedures Poor coordination between the different governance levels (regional/national/EU) Lack of serious/rigorous evaluation procedures (both ex- ante e ex-post) Quality of “demand” (poor innovation profile of applying firms) –> vicious circle Low selectivity Types of policy tools/incentives (dominance of automatic mechanisms)