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The Additionality of Public Support for Innovation: Evidence for Irish Manufacturing Firms Nola Hewitt-Dundas The Additionality of Public Support for Innovation: Evidence for Irish Manufacturing Firms Nola Hewitt-Dundas (QUB) Stephen Roper (ABS) Paper presented to the Fifth Israeli/British & Irish Regional Science Workshop, Tel Aviv, Israel, 29 th – 30 th April 2007

Overview • Economic & Policy Context • Conceptual Basis • Data source & research Overview • Economic & Policy Context • Conceptual Basis • Data source & research methods • Discussion of Findings • Key conclusions & policy implications

Regional & Policy Context Regional & Policy Context

Innovation Policy • Interventionist Policy for R&D and Innovation “Without state support and incentives Innovation Policy • Interventionist Policy for R&D and Innovation “Without state support and incentives the degree of investment in technology will be less than is desirable from the point of view of national economic development” (Culliton 1992 p. 55). • EU Objective 1 status capability dev, infrastructure, R&D • Innovation Support Programmes – focus on indigenouslyowned firms

Ireland: Support for R&D and Innovation Ireland: Support for R&D and Innovation

Northern Ireland: Support for R&D and Innovation Northern Ireland: Support for R&D and Innovation

R&D and Innovation Grant Support €m pa R&D and Innovation Grant Support €m pa

Implications for Research • Differences in economic & policy environments Ireland & NI • Implications for Research • Differences in economic & policy environments Ireland & NI • Targeting of Assistance – Policy focus on indigenously-owned firms – Policy focus on stimulating non-innovators to innovate - 1 st Timers

Rationale for Interventionist policy • Additionality & effect on business performance (Griliches 1995; Mamuneas Rationale for Interventionist policy • Additionality & effect on business performance (Griliches 1995; Mamuneas and Nadiri 1996) • Reduce the cost of building up knowledge stocks (Trajtenberg 2000), enhancing business performance (Klette and Johansen 1998), ability to conduct future research (Mansfield and Switzer 1984, Luukkonen 2000) • Development in Human Resources and innovation activity (Freel 2005) • Absorptive capacity (Veugelers and Cassiman 1999, Cassiman and Veugelers 2002) • Reputational or ‘halo’ effects (Powell 1998) • R&D cost savings through collaborative R&D (Irwin and Klenow 1996)

Focus of this paper - Project-level Additionality … the decision of a firm either Focus of this paper - Project-level Additionality … the decision of a firm either to abandon, go ahead with, or modify an innovation investment decision in light of the availability of public support. – Extensive Additionality – Incremental Additionality – Radical Additionality A Priori – where the population of firms comprises a mix of those undertaking no innovation, those undertaking incremental innovation and those undertaking radical innovation, public support for innovation should have positive extensive, Public Support typically a proportion of incremental and radical additionality effects. total innovation cost

Data Source & Methods • Innovation (knowledge) production function • I = Innovation output Data Source & Methods • Innovation (knowledge) production function • I = Innovation output • X vector of plant level control variables – knowledge sourcing – Market position – Resource base • Z binary treatment variable • Instrumental variables approach

Irish Innovation Panel (IIP) • 1991 – 2002 (analysis based on ‘ 94 to Irish Innovation Panel (IIP) • 1991 – 2002 (analysis based on ‘ 94 to ‘ 02) • 4 period postal survey • Manufacturing plants >=10 employees • Avg response 34. 5% – c. 56% plants product innovators – 12% sales new products – 25% sales new and improved products – c. 25% plants received public support for product dev.

Findings – Average Treatment Effects (ATEs) Findings – Average Treatment Effects (ATEs)

Plant-level variables All Firms Indigenous FIrms • Internal R&D • Supply Chain Knowledge • Plant-level variables All Firms Indigenous FIrms • Internal R&D • Supply Chain Knowledge • Supply-chain Knowledge Linkages linkages • Skill Levels • Capital Intensity • Production activity Less important • • Scale, Ownership, Plant Vintage Scale, Vintage, Multi-plant group

Policy Implications • Positive effect of public support for product development – Extensive, incremental Policy Implications • Positive effect of public support for product development – Extensive, incremental & radical additionality effects 1 Grant assistance is effective either in isolation or as part of a package of innovation support measures • Other factors – In house R&D and supply chain knowledge linkages 2 Initiatives to strengthen internal R&D innovation and absorptive capacity 3 Initiatives to support knowledge linkages likely to also encourage innovation – Organisational Context, skill base & capital investment 4 Measures to support skill development effectiveness of innovation through knowledge absorption & commercial exploitation