1. R&D expenditure and capital in Europe Hubert Strauss Economic & Financial Studies European Investment Bank, Luxembourg COINVEST Academic Conference Lisbon, 18 March 2010

2. 18/03/20102 Overview R&D expenditure: Basic facts R&D: From expenditure to capital stocks Business R&D capital stock estimates… …across countries …across industries …relative to value added …relative to the tangible capital stock …and how they are correlated with TFP

3. 18/03/20103 Basic facts on R&D expenditure (1) R&D expenditure by sector (% of GDP), 2000-07 Source: Eurostat Government and Higher education Business sector

4. 18/03/20104 Basic facts on R&D expenditure (2) Japan US EU Business R&D expenditure (% of GDP) Source: Eurostat

5. 18/03/20105 Basic facts on R&D expenditure (3) Industry shares in EU total business R&D expenditure, 2005 Chemicals & Pharmaceuticals 19% Transport equipment 25% ICT and other equipment 29% All other 27% Source: OECD, own calculations

6. 18/03/20106 From R&D expenditure to capital stocks Capitalisation rate: 100% Deflation of R&D expenditure: GDP deflator Geometric depreciation: 12% Initial capital stock: “First-7-years-growth” assumption Data source: R&D expenditure from OECD ANBERD Existing work EU-KLEMS R&D capital stocks for 15 countries 2003 Our work We updated EU-KLEMS R&D capital stocks to 2005/06 We estimated R&D capital stocks for 7 more countries

7. 18/03/20107 Business R&D capital stock estimates in % of GDP, 2005 Source: OECD, EU-KLEMS and own calculations

8. 18/03/20108 R&D capital stocks across countries % of GDP, 2005 Source: OECD, EU-KLEMS and own calculations

9. 18/03/20109 Different growth speeds of R&D capital stocks FI DK ES SE FR IT UK Index 1995=100 for each country Source: OECD, EU-KLEMS and own calculations DE EU

10. 18/03/201010 More of a standstill than convergence “Speeding ahead”“Catching up” “Falling behind” US SE JP NL FR FI DE UK BE IE IT DK PT ES EL EU average “Losing steam” Source: OECD, EU-KLEMS and own calculations

11. 18/03/201011 Business R&D capital stock estimates in % of GDP, 2005 Source: OECD, EU-KLEMS and own calculations

12. 18/03/201012 R&D capital stocks by industry Other manuf. Other Transport Chemicals&Pharma. ICT&other equip. Services in % of GDP, 2005 Source: OECD, EU-KLEMS and own calculations

13. 18/03/201013 R&D capital intensities R&D capital stock (in % of industry’s output), EU, 2005 Chemicals & Pharma. Transport equipment ICT & other equipment US Source: OECD, EU-KLEMS and own calculations Other Total

14. 18/03/201014 R&D-capital to tangible-capital ratio, 2005 Source: OECD, EU-KLEMS and own calculations

15. 18/03/201015 R&D capital intensities and R&D capital ratios, EU, 2005 Source: OECD, EU-KLEMS, own calculations

16. 18/03/201016 Connection between R&D capital and productivity Source: EU-KLEMS (TFP); EU-KLEMS, OECD and own calculations (R&D).

17. 18/03/201017 Summary and implications R&D capital stocks are important EU lags behind US and Japan in business R&D — Need strong and sustained increase in R&D spending Tremendous diversity in R&D capital stocks within the EU — No clear sign of convergence over time Positive connection between R&D capital and TFP growth  Include R&D capital in production function estimations

18. R&D expenditure and capital in Europe Hubert Strauss Senior Economist European Investment Bank, Luxembourg h.strauss@eib.org COINVEST Academic Conference Lisbon, 18 March 2010