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Working Paper

Research and innovation policies and productivity growth

Can research and innovation policies power growth? The answer currently can only be a timid yes. Too little is known of what drives the actual effects of R&I policies.

By: Date: May 10, 2021 Topic: Digital economy and innovation

This Working Paper is an output from the MICROPROD project,
which received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 822390.

We review the evidence on the impact of public intervention on private research and innovation, and how research and innovation and R&I policies affect growth in the applied macro models most commonly used in European Union policy analysis. The evidence suggests that R&I grants and R&I tax credits can have positive effects in terms of stimulating investment in innovation. In terms of the impact of public R&I interventions on economy-wide GDP growth and jobs, the available applied macro models predict positive effects over the long term. It therefore takes time before short-term negative effects associated with reallocations of high-skilled labour from other productive activities to generate the extra innovations, and the negative effects from displacing older, more labour-intensive production processes, are compensated for. To the question of whether R&I policies can serve to power growth, the answer can only be a timid yes at this stage. R&I policies certainly have the potential, but still too little is known of what drives their actual effects. More micro and macro evaluations are still needed.

Recommended citation:

Veugelers, R. (2021) ‘Research and innovation policies and productivity growth’, Working Paper 08/2021, Bruegel

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