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Innovation Union Competitiveness report

by European Commission
Innovation ()

Abstract

Investing for the future 1. The EU is slowly advancing towards its 3 % R&D target - but there is a widening gap between the EU and its world competitors notably due to weaker business R&D investment Investment in research and innovation is a key driver of growth and innovative ideas for the future of Europe. This is why increasing investment in R&D is one of the five priorities of the Europe 2020 strategy. During the period 2000-2007, the EU R&D intensity stagnated as a result of a parallel increase in GDP and Gross Expenditure on R&D (GERD). More recently, EU R&D intensity has grown from 1.85 % of GDP in 2007 to 2.01 % in 2009 as the result of a decrease in GDP and widespread budgetary prioritisation of public R&D funding combined with the resilience of private investment in R&D. This can be attributed to the positive impact of the Lisbon agenda and national reforms initiated starting in 2005. Between 2000 and 2009, R&D intensity progressed in 24 Member States with acceleration in the period 2006-2009 in a majority of Member States. Despite this progress, most Member States in 2009 were still far short of the national 2010 R&D targets they set for themselves in 2005. In 2010, nearly all the EU Member States set new R&D targets for 2020, which are generally ambitious but achievable. Between 1995 and 2008, total research investment in real terms rose by 50 % in the EU. However, performance was higher in the rest of the world, as the world economy became more knowledge-intensive. During the same period, the United States increased its total research investment in real terms by 60 %, the four most knowledge intensive countries in Asia (Japan, South Korea, Singapore and Taiwan) by 75 %, the BRIS countries (Brazil, Russia, India, South-Africa) by 145 %, China by 855 % and the rest of the world by almost 100 %. The result is that a rapidly growing share of R&D activities in the world is being carried out outside Europe. In 2008, less than a quarter (24 %) of the total world R&D expenditure was performed in the EU compared to 29 % in 1995. On the current trend, China is set to overtake the EU by 2014 in terms of volume of R&D expenditure. EU under-investment in R&D is most visible in the business sector where Europe is falling further behind the United States and the leading Asian economies. Relative to GDP, business invests twice more in Japan or in South Korea than in Europe4. The business R&D intensity gap in the EU is due to two main reasons: (i) the EU has a smaller and decreasing share of high-tech manufacturing sectors in its economy than the United States and (ii) these sectors are less research-intensive in the EU than in the United States. This is largely attributable to the framework conditions in place in Europe which are less favourable to investing and attracting investors than, for instance, in the United States. The slow speed of structural change in Europe makes also investment in R&D in Europe less likely to develop in fast growing sectors. As a result, the average annual growth rates of business R&D intensity in Japan and South Korea were much higher than those of the EU. Chinese firms are also becoming increasingly R&D intensive, with the result that since 2000 business R&D intensity in China has been growing 30 times quicker than in Europe to reach a level of 1.12 % in 20085. Major obstacles to be tackled include access to finance, e.g. venture capital, the much higher cost of patenting in Europe particularly for SMEs, and the framework conditions required in order to enhance knowledgeintensive entrepreneurial activities.

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