Insights into the knowledge economy

How is knowledge created in a globalised world, and how do firms use this knowledge to produce and market products? These two fundamental questions were at the centre of the SCIFI-GLOW research project, exploring links between knowledge sector organisation and the behaviour of markets and firms. SCIFI-GLOW yielded robust policy-relevant findings that could help guide further development of the knowledge economy.

Involving ten research teams from seven European countries, SCIFI-GLOW sought to deepen our understanding of how firms, markets and institutions transform scientific advances into innovation. The first phase of the research focused on knowledge production in a broad sense, considering not only the work of universities and research institutes but also the contribution of public and private enterprises. The second phase looked at the effect of globalisation on the organisation of firms.

As a starting point, the scientists examined data from 3.6 million scientific articles (published 1998-2002) and the 47 million citations they received (1998-2007). The researchers found that since the mid-1990s the EU share of total citations has been greater than that of the US in only seven out of 22 fields studied. They also noted that “the mean citation rate in the US is greater than that of the EU in every one of the 22 fields”1. This, the researchers observe, should help dispel any popular notions about a ‘European Paradox’ (i.e. that Europe is a global scientific leader but lacks America’s entrepreneurial ability to transform scientific excellence into growth, innovation and jobs).

Taking a global view, the project concluded that “despite the continued dominance of the US and the increasing importance of the EU in science, advanced countries are in relative decline and... scientific research from emerging economies is growing in stature – both in quantity and quality”2. The consortium found China to be the main driving force in the catch-up of emerging countries when it comes to scientific production.

Another avenue of the research explored the role that international markets play in driving innovation. Various global factors were taken into consideration, such as foreign direct investment (FDI) and knowledge spillovers from technological advancement. To help gauge the relationship between innovation and FDI, the researchers examined data from a variety of automobile companies operating in China. Here the team observed that “FDI firms are less R&D intensive but, when they innovate in new products, they are more [successful in product innovation] than domestic-funded firms”3.

More generally, the consortium concluded that exposure to international markets and competition encourages firms to innovate. With respect to knowledge spillovers on the technological frontier, the project observed that such spillovers have been important for productivity growth in many countries (not just the countries where the innovation occurs). Countries that depend on technological advancements from abroad, however, may face disadvantages.

In terms of industry-science links – considered extremely important for innovation - the consortium found European performance to be disappointing. Both public and (above all) private investment in research and development still falls short of the goals set by the Lisbon Strategy for EU growth, the researchers observed. Their analysis: “The framework conditions for innovation... fail to provide adequate incentives and rewards [and] the networks needed for innovation are not well enough developed within the private sector and between the public and private sectors”4.

More broadly speaking, SCIFI-GLOW’s research indicates that firms have an incentive to under-invest in research and development “in the hope of free-riding from the investments of other companies”5. Therefore, in order to stimulate R&D activity, policy makers are encouraged to intervene through various measures such as subsidies, tax credits or public procurement.

Finally, with respect to the European Union’s current crisis, the consortium’s work suggests that more radical structural reforms are needed than those foreseen in the EU’s Annual Growth Strategy 2012. SCIFI-GLOW’s final policy report (May 2012) calls for “a much more explicit commitment to public knowledge investment”6 in order to stimulate smart growth. It also notes that the EU’s inclusive growth priority “is probably most directly challenged by the sovereign debt crisis”7. Policy makers interested in the link between knowledge production and enterprise development will find the project’s final policy report a worthy but sobering read.

 

1 Ruiz Castillo et al (2009), A Comparison of the Scientific Performance of the U.S. and the European Union at the Turn of the XXI Century. See: http://scifiglow.cepr.org/index.php?q=node/164

2 Viv Davies (May 2012, forthcoming), SCIFI-GLOW Final Policy Report.

3 Pierre Mohnen et al (2009), FDI, R&D and Innovation Output in the Chinese Automobile Industry.
See: http://scifiglow.cepr.org/index.php?q=node/169

4 Reinhilde Veugelers (2010), Improving Europe’s Industry-Science Links.
See: http://scifiglow.cepr.org/files/policy_papers/D22%20Policy%20Paper%20WP2%20by%20Reinhilde%
20Veugelers.pdf

5 Michele Cincera (May 2012, forthcoming), SCIFI-GLOW Final Policy Report.

6 Luc Soete (May 2012, forthcoming), SCIFI-GLOW Final Policy Report.

7 Luc Soete (May 2012, forthcoming), SCIFI-GLOW Final Policy Report.

SCIFI-GLOW - Science, innovation, firms and markets in a globalized world (duration: 1/6/2008 – 31/7/2011). FP7 Socio-economic Sciences and Humanities, Activity 1 – "Growth, employment and competitiveness in a knowledge society", Research area 1.1 "Changing role of knowledge throughout the economy". Collaborative project (small and medium scale focused research project).

See: http://scifiglow.cepr.org/

Contact: Susan Gransden, sgransden@cepr.org