Madrid - 3 July 2008

Madrid - 3 July 2008

Europe’s R&D: missing the wrong targetBruegel POLICY BRIEF 2008/3, March

Bruno VAN POTTELSBERGHE (ULB, Solvay Business School, Bruegel)– Working Paper with Azèle Mathieu– Working Paper with Didier François– Other references

The R&D intensity target

• Since 2002…The Lisbon Agenda

– 3% of GDP should be devoted to R&D– One third being funded by government

• 1 Observation• 2 ‘bémol’• 2 hypotheses

Europe’s R&D:Missing the wrong target

Source: van Pottelsberghe, Bruegel Policy Brief 2008/03,

Total R&D intensity over 25 years

EU’s R&D intensity has been flat lining under 2% for 25 years


EU(27) in 2006 US (51) in 2004

MaximumSweden

3.8%New Mexico

8.0%

MinimumCyprus and Romania0.42% and 0.46%

Wyoming and South Dakota0.40% and 0.50%

Median across states 1.2% 1.9%

There are strong variations across States, but the distribution is always higher in the US, with 7

States above 4%


Government-funded R&D actually dropped over the past ten years

• None of the EU member states has fulfilled its self-set commitment, as no country actually devotes one percent of its GDP to funding public or business (through subsidies and procurement) performed research activities. The only countries that are close to the 1% target are Sweden, Austria and Finland.

• A large number of countries have actually reduced their government funding of R&D as a percentage of GDP. A drop also occurred in the US and Japan over the same period, but it was largely compensated for by a more than proportional increase in business-funded R&D, which was not the case for EU27.

And national reform programs are frequently overambitious, especially in countries with low R&D intensity

AT

BE

CY

DK

ES

FI FRDE

GR

HU

IE

IT

LV

LI

LUNL

PL

PT

SK

SL ES

UK

0

1

2

3

4

-1 -0,5 0 0,5 1 1,5 2 2,5 3

Ratio of the national target (2010) to the

national R&D intensity (2004)

Gap betweent the 3% target and the level of R&D intensity in 2004


0% 5% 10% 15% 20% 25% 30%

Sub-total electrical-electronical

Office & Computing Machinery

Drugs & Medicines

Professional Goods

Aircraft

Motor vehicles

Non-Electrical Machinery

Other Transport Equipment

Chemicals excl. Drugs

Rubber & Plastic Products

Shipbuilding & Repairing

Non-Ferrous Metals

Iron & Steel

Wood Products, Furniture, Other Manufacturing, nec

Non-Metallic Mineral Products

Petroleum Refineries & Product

Textiles, Apparel & Leather

Food, Beverages & Tobacco

Metal Products

Paper, Paper Prod. & Printing

Services sector

Technological specialization must be accounted for when

analysing countries’ R&D intensity.

Cf. Mathieu and van Pottelsberghe, 2008

Source: Mathieu & BVP, 2008

RIi,jt = βjJ + φtT (1)

RIi,jt = βjJ + αiI + φtT (2)

18 countries (j) with 21 industries (i) over five years (t)

Country effect without and with industry dummies .Cf. Mathieu and van Pottelsberghe, 2008, 22 industries, 2000-2004, all estimates include time dummies

Adj. R-2Without ID: 32%With ID: 69%

Source: Mathieu and van Pottelsberghe, 2008, new results

Regression on

18 countries, 5 years (2000-2004),21 industries

InterceptTimme dummies (ref: 2000)Country dummies (ref: GE)Sectoral dummies (ref: Mach. and equip.)

None of the time dummies are significant

Param. T-statIreland -0,057 -9,50 *Czech Republic-0,054 -8,30 *Spain -0,052 -8,96 *South Korea -0,040 -6,00 *Italy -0,038 -6,25 *Australia -0,027 -4,21 *Denmark -0,021 -3,49 *UK -0,010 -1,59Belgium -0,009 -1,50Canada -0,007 -1,13Finland -0,005 -0,81The Netherlands-0,004 -0,72Germany as referenceNorway 0,004 0,70Japan 0,013 2,16 *USA 0,023 3,95 *France 0,025 4,20 *Sweden 0,029 4,89 *Cons. 0,062 10,26 *

Number of obs 5735Adj R-squared 0,5762 Source: Mathieu and van Pottelsberghe, 2008,

new results

R&D intensity, 2000-2004

Higher than Germany

Like Germany

Below Germany

EU wrt USA and Japan(1998-2002, 3 regions, 21 industries)

Source: Mathieu and van Pottelsberghe, 2008, R&D intensity, 1998-2002

0 0,2 0,4 0,6

MEDICAL. & OPT. INSTR.

OFFICE & COMP. MACH.

RADIO, TEL. & COM. EQUIP.

PHARMACEUTICALS

OTHER TRANSP.

MOTOR VEHICLES

CHEMICALS

ELECTRICAL MACH.

MACHINERY & EQUIP.

COKE, REF. PETROL. & …

RUBBER & PLASTICS

NON-METALLIC MINERALS

FABRICATED METAL PROD.

FOOD, BEVERAGES & …

BASIC METALS

SERVICES

TEXTILES, LEATHER & …

USA

EU

Comparative advantage of countries in emerging technology fields

(share of patents in the field in the country divided by the share of the field in total OECD patents). EPO patent applications;

Priority Year 2003

Source: D. Guellec and D. Pilat, Productivity Growth and innovation in OECD, forthcoming, 08

Why do some countries have a higher R&D intensity?

• Expected return…– Market size: need more integration (USA)?

• No market for technology• Fragmented systems in Europe: costs and complexity

Patenting ProcessesThe case of the European Patent Office

The EPS - Cost consequences

Source: François and van Pottelsberghe, 2006, forthcoming0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

90.000

100.000

110.000

120.000

130.000

EPO3 EPO13 USPTO JPO

Process costs

Process and translation

Process and external serv.

TOTAL 10 years

TOTAL 20 years

1,8564,670 6,575 1,541

8,070 20,175

Source: van Pottelsberghe and François, 2006

The lack of an integrated market for technology

induces very high costs of patenting and a complex

managerial burden on European innovators

London Agreement(1st May 2008)

* Patent granted by EPO has claims translated into 3 official languages of the EPO: English, French and German;** State having no official language in common with one of the official language at the EPO, may require that translation of description to be supplied in the official language of the EPO prescribed by that state;

Language in commonwith the EPO (8)

D: NO

C: YES*

D: YES

C: YES

D: EN**

C: YES

D: NO

C: YES

Non-Signatories of LA (19)

PatentD

C

Description

Claims

BE, CH, DE, FR,LI, LU, MC, UK

LV, SI HR, DK, IS,NL, SE

AT, BG, CZ, CY, EE, ES, FI, GR, HU, IE, IT, LT, MT, NO, PL,

PT, RO, SK, TR

Signatories of LA (15)

NO language in commonwith the EPO (7)

The impact of London Agreement on the cost of patenting in Europe, May 2008 (*)

EPO-3: DE, FR, UK - with more than 70% of the EP patents validated in 2003;EPO-6: DE, FR, UK, CH, IT, NL - more than 30%;EPO-13: DE, FR, UK, CH, IT, NL, AT, BE, ES, DK, FI, IE, SE - more than 12%;EPO-34: all the EPC contracting states as of May 2008;

Source: van Pottelsberghe and Mejer, 2008, forthcoming

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

EPO-3 EPO-3(LA)

EPO-6 EPO-6(LA15)

EPO-6(LA34)

EPO-13 EPO-13(LA15)

EPO-13(LA34)

EPO-34 EPO-34(LA15)

EPO-34(LA34)

Translation cost

Procedural fees

26%29% 39%

24%48%

21%

62%

Relative cost saving

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

EPO-13(LA15)

EPO-6(LA15)

USPTO KIPO SIPO JPO BR-PO IN-PO AU-PO CIPO

Renewal fees (up to 10th)

Translation cost

Procedural cost

Cost structure of direct patent fillings and 10 year of maintenance,May 2008 (in US PPP)


2006 2008

EPO-13 8.5 (10.8) 9.0 (11.4)

EPO-13(LA15) - 6.9 (8.7)

EPO-6 5.2 (6.5) 5.6 (7.1)

EPO-6 (LA15) - 4.0 (5.1)

JPO 0.8 (1.9) 0.8 (2.0)

KIPO 0.7 (1.7) 0.7 (1.7)

SIPO 0.5 (1.2) 0.5 (1.2)

CIPO 0.5 (0.6) 0.5 (0.6)

IN-PO 0.5 (1.1) 0.4 (1.0)

BR-PO 0.4 (1.0) 0.4 (0.9)

AU-PO 0.3 (0.4) 0.3 (0.4)

Procedural and translation costs relative to the US (per claim*)

Note: *Numbers in brackets indicate procedural and transaction cost per claim relative to the US.


USPTO

JPO

EPO-6

EPO-13

AU-PO

SIPO

IN-PO BR-PO

KIPOCIPO

0

1

2

3

4

5

6

7

8

9

10

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

CCC Index (US PPPs)

M o

f c

laim

s

Millions of claims filled v. procedural and translation costper claim per million capita (2006)*

Note: * The axis x-shows cost per claim per million capita, expressed in US PPPs 2006, and includes process and translation costs. The axis-y shows the total number of claims filled in 2006 in each patent office. The line indicates the trend between three main regional offices: EPO, JPO and USPTO.


EPO-6(LP15)

Why do some countries have a higher R&D intensity?



– More Academic research (Sweden)?• Provides ideas to the market• Does not compete on the market for researchers

0

0,5

1

1,5

2

2,5

3

0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9

Indu

stry

-fina

nced

R&D

, % of

GDP

R&D performed by the higher education sector, % of GDP

SE

FI

DK

AT

DE

NL

LUFR BE

UKIE

CZ

SIES

ITHU

PTGR

PL

SKRO

Academic research provides new ideas to the market, inducing more applied research and development

for the business sector


Why do we have a US and a Swedish exception?



– More Academic research (Sweden)?• Provides ideas to the market• Does not compete on the market for researchers

– Other science and technology policies?• Subsidies, tax credits…• Framework conditions, laws, ….

F isca l in cen tives

+ s tim u lating - crow d in g outth rou gh p rices

- su bstitu tion - a llocatived is tortions

G ran ts , p rocu rem en ts , loan s , ..

D irect su p p ort

U n ivers ity research

+ sp illovers - a llocatived is tortions

- crow d in g outth rou gh p rices

P u b lic labs

In d irect su p p ort

4 P O L IC Y T O O L S

+

+ 0

-

Impact on business R&D

Impact on growth

nr

+/-+++

Learning from evaluationsGuellec and van Pottelsberghe (2003, 2004)

Regulation : FDA, ...., PATENTING SYSTEM

Concluding remarks

• International comparisons of R&D intensity must account for technological specialization

• Very few government have met their own agenda• Sweden and the USA however stand well above other

countries (as opposed to South Korea, Finland, Denmark)• Other factors are :

– Market size: need more integration (USA)?– More academic research (Sweden)?– Other science and technology policies?

• Subsidies, tax credits…• Framework conditions, laws, ….

van Pottelsberghe de la Potterie B. and D. François, 2008, The cost factor in patent systems, Journal of Industry, Competition and Trade, in press.

van Pottelsberghe de la Potterie B., M. Mejer, 2008, The London Agreement and the relative cost of patenting in Europe, CEPR Discussion Paper, forthcoming.

Guellec D. and B. van Pottelsberghe de la Potterie, 2004, From R&D to productivity growth: do the institutional settings and the sources of funds of R&D matter?, Oxford Bulletin of Economics and Statistics, 66(3), 353-376.

Guellec D. and B. van Pottelsberghe de la Potterie, 2003, The impact of public R&D expenditure on business R&D, Economics of Innovation and New Technology, 12(3), 225-244.

Mathieu A. and B. van Pottelsberghe de la Potterie, 2008, A note on the drivers of R&D intensity, CEPR Discussion Paper, 6684.

Guellec D. and B. van Pottelsberghe de la Potterie, 2007, The Economics of the European Patent System, Oxford University Press, Oxford, February, 250 p.

References

Madrid - 3 July 2008

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