Passend zur Blog-Reihe “Are we being stupid?” gab es gestern in der ZIB 2 eine Diskussion über den Wirtschaftsstandort Österreich/ Europa und die tatsächliche und mögliche Abwanderung von Industrieunternehmen.
In her last post, Katharina pointed to a great data source on R&D expenditure, GERD. In the comment section of that post we discussed the issue of cuts in government R&D expenditures. An interesting question in this context is whether public R&D expenditure is a complement to private R&D expenditure or a substitute. If it is a complement, cuts in the public R&D budget are very bad, because they can be expected to be followed by cuts in private research budgets. If it is a substitute, public R&D ‘crowds out’ private R&D, so that public cuts are not that bad because they can be expected to be replaced by private R&D.
There is an extensive literature on this question, yielding mixed results. So I asked myself what does GERD say? The figure below shows a scatterplot of government and private expenditure on R&D as a share in GDP for 36 countries in 2008. You can see that the data points are pretty much all over the place (Austria is marked red). It turns out that if you regress private on public R&D expenditure, you get a positive coefficient indicating complementarity. However, the coefficient is not statistically significant (t-ratio of 1.63) and the R-squared is very low. So we have no strong evidence for complementarity, but also no evidence for substitutability. Instead, what my recreational econometrics exercise suggests is that private R&D expenditure is pretty much independent from government research budgets.
In part 1 we have established that growth in the West relies on innovation and technology much more than growth in developing countries. We are the ones at the technology frontier, so if we want to grow, we need to be more innovative. In this blog I’ll mainly cover government policies regarding R&D and higher education, focusing a lot on expenditure (1). If you’re interested in broader measures, you could start here, with the Innovation Union Scoreboard 2014.
For those of you who like the big numbers, let me introduce you to GERD. GERD is the Gross Domestic Expenditure on R&D, which includes expenditure by business enterprises, governments and foreigners. In 2010 GERD stood at 245 673 million in absolute terms in the EU-27. Given that this does not really tell us much, GERD is normally calculated relative to GDP. Between 2000 and 2010 the ratio has roughly been flat at around 1.80-2% of GDP. This means that internationally the EU-27 figures are below those in other countries: Japan (3.45%), US (2.80%).2 There are also substantial differences within the EU. The highest expenditures in 2010 were reported from (how could it be different) Finland (3.87 %), Sweden (3.42 %) and Denmark (3.06 %).