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R&D in the European Strategy:
the case of the 3% effort of
BARCELONA
CESAER
POLITECNICO DI MILANO
Milano 12-14 Nov 2008
1
R&D in the European Strategy:
the case of the 3% effort of
BARCELONA
I. Methodological and Theoretical Aspects
II. Results of the reference scenario V0
III. Other Results
IV. Conclusions
2
I. Methodological and Theoretical Aspects
I.1 What can we learn from new growth theories ?
I.2 The Technical Progress in NEMESIS
I.3 Overview of the different exercises
3
I.1 What can we learn from the new
growth theories?
1/2
4

We can act on long term growth

R&D Policies are important

Precise description of endogenous technical
progress
I.1 What can we learn from the new
growth theories?
2/2
5

Possibilities of non decreasing returns

Knowledge externalities
–
Social returns of research are greater than private
returns
–
Spontaneous research level is insufficient
I.1 New growth theories in applied
modelling

Two types of innovations
–
–

Endogenous technical progress
–
–

Learning
R&D
Knowledge externalities (Knowledge Spillovers)
–
–
6
Process
Product (quality)
Inter-sectoral
Inter-national
I.2 The technical progress in NEMESIS 1/9
7

From R&D to knowledge stock

From knowledge to innovations

From innovation to economic performances
I.2 The technical progress in NEMESIS 2/9
From R&D to Knowledge stock
R&D Expenditures
R&D Stock
Decay
R&D Stock of the Sector
KNOW
Technology Flows
Technology
Flow Matrices
Matrices
R&D Stock of Other
Sectors
Public R&D Stock
8
R&D Stocks of Foreign
Sectors
Foreign Public R&D Stock
I.2 The technical progress in NEMESIS 3/9
From knowledge to innovation
ΔKNOW
Process Innovation
9
Product Innovation (Quality)
I.2 The technical progress in NEMESIS 4/9
From innovations to economic performances

Process innovation:
Productivity Growth
Increase of supply
Process Innovation
Price Decrease
Supply
Demand
volume/price elasticity of
the demand ε
Increase of the demand
10
I.2 The technical progress in NEMESIS 5/9
From innovations to economic performances

Process innovation :
–
Increase of the demand greater than the supply
increase if ε>1
–
But in time series ε<1
→ Thus, absorption following a productivity shock is not
sufficient for maintaining factors use
11
I.2 The technical progress in NEMESIS 6/9
From innovations to economic performances

Product Innovation:
Increase of efficiency by
volume unit
Product Innovation
(Quality)
Decrease of the efficiency
unit price
Supply
Demand
Variation of volume
demand
12
Increase of efficiency unit
demand
I.2 The technical progress in NEMESIS 7/9
From innovations to economic performances

13
Product innovations:
–
For a production increase, the increase of the demand for
the new efficiency must be greater than the increase of
efficiency due to the innovation, that is generally the case.
–
Moreover, product innovations makes more than
compensate the decrease of factor employment due to
process innovations
I.2 The technical progress in NEMESIS 8/9
Technical progress equations

Process innovations
TFP
KNOW
a
TFP
KNOW

Quality (product) innovations
QUAL
KNOW
 a'
QUAL
KNOW
14
I.2 The technical progress in NEMESIS 9/9
Technical progress equations

Economic performance
Y
TFP
QUAL

 '
Y
TFP
QUAL
Production
increase
Demand
increase due to
process
innovations
Demand
increase due to
quality
innovations
Y
KNOW
Y
KNOW
   a   ' a '


Y
KNOW
Y
KNOW
15
I.2 Estimations of the elasticity of
1/2
Production with respect to R&D and KNOW

Econometric studies
Y  A   SRD  F  K , L 

Y
SRD

Y
SRD
–
16
α similar role than β
I.2 Estimations of the elasticity of
2/2
Production with respect to R&D and KNOW

Value of α in the literature (Mohnen [90], Griliches [92],
Nadiri [93], Cameron [98], Guellec et [92] van Pottelsberghe de La
Potterie [2001], Bagnoli [2001])
–
17
Between 0.05 et 0.20
I.3 R&D and knowledge productivity in NEMESIS

First assumption : R&D elasticity vary with the technological
advancement of the sector: it is strongest in R&D intensive
sectors and thus strongest in R&D intensive countries

Other assumptions: R&D elasticity is identical in all sectors
and countries:
–
–
18
β=0.1
β=0.2
I.3 An important mechanism

19
Sharing of productivity gains
–
0% of productivity gains goes to wages
–
33% of productivity gains goes to wages
–
100% of productivity gains goes to wages
I.3 Implementation of R&D policies
20

Public or private financing

Public procurements

Private research vs 1/3-2/3

Absolute or relative convergence of countries
I.3 Summary of realised simulations
β = 0.05 + 0.5*f(R/Y)
2010 : 0.075 ; 2030 : 0.124
Productivity gains:
0 % to Employees
Productivity gains:
100 % to Employees
Productivity gains:
33 % to Employees
β = 0.025 + f(R/Y)
2
0
1
0
:
0
.
0
7
5
;
2
0
3
0
:
0
.
1
4
1
 = 0.10
Public-sector
V0.1
Finance for
Research
Total convergence
Private-sector
Finance for
V4.0
V5.0
V0.0
Research
Public-sector
orders
V0.4
100 %
21
Research
V0.2
Relative
Convergence
V0.3
V1.0
V2.0
II. Results of the reference scenario V00
II.1 Macro-economic results for Europe
II.2 Sectoral results for Europe
II.3 Results for one country (France)
22
II.1 Macro-economic results for Europe
Total Employment
23
Research Employment
GDP
Budget Balance
2010
2030
2010
2030
2010
2030
2010
2030
Austria
36
145
29
52
1.06
9.01
0
1.15
Belgium
41
155
34
59
1.17
7.52
0.13
0.7
Denmark
24
64
22
39
0.96
8.08
-0.07
0.71
Germany
366
1722
324
441
1.06
7.62
0.04
0.95
Finland
17
63
16
35
0.88
5.85
0.08
-0.42
France
303
949
208
345
1.18
7.06
0.07
0.97
Greece
102
781
80
199
6.26
49.84
0.26
11.45
Ireland
55
231
55
133
1.74
15.81
0.11
1
Italy
368
1728
332
627
2.98
19.82
0.59
5.44
Netherlands
75
384
58
124
0.95
8.05
0
1.05
Norway
39
157
29
53
1.56
12.71
0.62
3.65
Portugal
39
221
57
119
4.37
24.71
0.45
5.01
Spain
205
1008
219
402
3.19
22.62
0.18
6.28
Sweden
13
62
9
9
0.79
3.67
0.19
-0.28
U.K.
400
2335
250
502
1.51
12.75
-0.03
3.16
Europe
2084
10007
1634
3140
1.7
12.15
0.13
2.33
Employment and Research Employment in thousands, GDP in %, Budget Balance in GDP points
II.1 Macro-economic results for Europe
GDP, Employment and Public Financing Capacity for Europe (in %)
14
12
10
8
GDP (Europe)
Employment (Europe)
PFC in % GDP (EUROPE)
6
4
2
24
-2
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
II.1 Macro-economic results for Europe
GDP and its Counterparts for Europe (in % Deviation w.r.t. the Baseline)
20
15
10
Final Cons. (Europe)
Firms' Investment (Europe)
Exports (Europe)
Imports (Europe)
GDP (Europe)
Employment (Europe)
5
25
-5
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
-5
Fer. & Non Fer. Met.
Electricity
Refined Oil
Gas Distr.
Oil & Gas Extr.
Coal & Coke
Non market services
Other Market services
Bank, Finance & Insurance
Communication
Other Transp.
Sea & Air Transp.
Inland Transp.
Lodging & Catering
Distribution
Construction
Other Manuf.
Rubber & Plastic
Paper & Print. Prod.
Text., Clothes & Footw.
Food,Drink & Tob.
Transp. Equip.
Electr. Goods
Office Mach.
Agr. & Ind. Mach.
Metal Prod.
Chemical Prod.
Non Met. Min Products
26
Agriculture
II.2 Sectoral results for Europe
Production, Employment and Investment for European Sectors in 2030 (in % Deviation w.r.t. the
Baseline)
25
20
15
10
EuropeProduction
EuropeEmployment
EuropeInvestment
5
0
II.2 Sectoral results for Europe
Results for Chemical Products (in % Deviation w.r.t. the Baseline)
20
15
Europe:Production Chemical
Prod.
Europe:Imports Chemical
Prod.
10
Europe:Exports Chemical
Prod.
5
Europe:Employment Chemical
Prod.
Europe:Total Factor
Productivity Chemical Prod.
-5
27
-10
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
II.2 Sectoral results for Europe
28
II.2 Sectoral results for Europe
Results for Office Machines (in % Deviation w.r.t. the Baseline)
25
20
Europe:Production Office
Mach.
15
Europe:Imports Office Mach.
10
Europe:Exports Office Mach.
Europe:Employment Office
Mach.
5
Europe:Total Factor
Productivity Office Mach.
-5
29
-10
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
II.2 Sectoral results for Europe
Results for Transport Equipements (in % Deviation w.r.t. the Baseline)
20
15
Europe:Production Transp.
Equip.
Europe:Imports Transp. Equip.
10
Europe:Exports Transp. Equip.
5
Europe:Employment Transp.
Equip.
-5
30
-10
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
Europe:Total Factor
Productivity Transp. Equip.
II.2 Sectoral results for Europe
31
II.2 Sectoral results for Europe
32
II.3 Macro-economic results for France
33
II.3 Sectoral results for France
Sector Chemicals for France: (in % Deviation w.r.t. the Baseline)
18
16
14
12
Europe:Production Chemical Prod.
France:Production Chemical Prod.
France:Imports Chemical Prod.
France:Exports Chemical Prod.
France:Employment Chemical Prod.
10
8
6
4
2
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
34
2002
0
II.3 Sectoral results for France
Sector Electrical Goods for France: (in % Deviation w.r.t. the Baseline)
18
16
14
12
10
Europe:Production Electr. Goods
France:Production Electr. Goods
France:Imports Electr. Goods
France:Exports Electr. Goods
France:Employment Electr. Goods
8
6
4
2
-2
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
35
2002
0
II.3 Sectoral results for France
Sector Transport Equipment for France: (in % Deviation w.r.t. the Baseline)
16
14
12
10
Europe:Production Transp. Equip.
France:Production Transp. Equip.
France:Imports Transp. Equip.
France:Exports Transp. Equip.
France:Employment Transp. Equip.
8
6
4
2
-2
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
36
2002
0
II.3 Sectoral results for France
Sector Construction for France (in % Deviation w.r.t. the Baseline)
12
10
8
6
Europe:Production Construction
France:Production Construction
France:Employment Construction
4
2
37
-2
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
II.3 Sectoral results for France
38
III Other results
Sharing of productivity gains
V00 (33% to wages)
EUROPE
FRANCE
V30 (0% to wages)
GDP : 12.14%
Empl: 10 007
GDP : 12.65%
Empl: 11 077
GDP : 11.14%
Empl: 7 971
Res: 3 140
B. Bal.: 0.13%
Res: 3 174
B. Bal.: -0.01%
Res: 3 073
B. Bal.: 0.38%
GDP : 7.06%
Empl: 949
GDP : 7.32%
Empl: 1 035
GDP : 6.53%
Empl: 791
Res: 346
B. Bal.: 0.07%
Res: 348
B. Bal.: -0.03%
Res: 343
B. Bal.: 0.30%
GDP in % deviation w.r.t the baseline in 2030
Empl: Total Employment in thousands deviation w.r.t. the baseline in 2030
Res: Research Employment in thousands deviation w.r.t. the baseline in 2030
B. Bal : Budget Balance in GDP Points in 2010
39
V40 (100% to wages)
III Other results
Variantes Partage de la Valeur Ajouté (Ecarts en % p/r à la base)
14,00
12,00
10,00
8,00
6,00
4,00
2,00
40
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
0,00
33%, GDP
33%, Emploi
0%, GDP
0%, Emploi
100%, GDP
100%, Emploi
III Other results
Sensivity analysis on β
V10 : β = 0.025 + f(R/Y) 2010 : V00 : β = 0.05 + 0.5*f(R/Y)
V20 : β = 0.1
0.075 ; 2030 : 0.141
EUROPE
FRANCE
2010 : 0.075 ; 2030 : 0.124
GDP : 16.28%
Empl: 15 222
GDP : 12.14%
Empl: 10 007
GDP : 10.89%
Empl: 5 720
Res: 3 433
B. Bal.: -0%
Res: 3 140
B. Bal.: 0.13%
Res: 3 044
B. Bal.: 0.41%
GDP : 9.79%
Empl: 1 491
GDP : 7.06%
Empl: 949
GDP : 6.14%
Empl: 485
Res: 379
B. Bal.: 0%
Res: 346
B. Bal.: 0.07%
Res: 340
B. Bal.: 0.19%
GDP in % deviation w.r.t the baseline in 2030
Empl: Total Employment in thousands deviation w.r.t. the baseline in 2030
Res: Research Employment in thousands deviation w.r.t. the baseline in 2030
B. Bal : Budget Balance in GDP Points in 2010
41
III Other results
Variantes en fonction de beta (Ecarts en % p/r à la base)
25,00
20,00
Beta=F(RD/Y), GDP
Beta=F(RD/Y), Employment
Beta=1, GDP
Beta=1, Employment
Beta=2, GDP
Beta=2, Employment
15,00
10,00
5,00
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
42
2002
0,00
III Other results
Policy Implementation scenarii
V00 : Private Financing
EUROPE
FRANCE
V01 : Public Financing
GDP : 12.14%
Empl: 10 007
GDP : 15.20%
Empl: 13 867
GDP : 15.81%
Empl: 11 180
Res: 3 140
B. Bal.: 0.13%
Res: 3 273
B. Bal.: -0.81%
Res: 3 298
B. Bal.: -2.63%
GDP : 7.06%
Empl: 949
GDP : 8.80%
Empl: 1320
GDP : 9.48%
Empl: 1 083
Res: 346
B. Bal.: 0.07%
Res: 359
B. Bal.: -0.57
Res: 403
B. Bal.: -2.52%
GDP in % deviation w.r.t the baseline in 2030
Empl: Total Employment in thousands deviation w.r.t. the baseline in 2030
Res: Research Employment in thousands deviation w.r.t. the baseline in 2030
B. Bal : Budget Balance in GDP Points in 2010
43
V02 : Public Orders
IV. Conclusions

Exercise limited by some assumptions
–
–
–

44
No finance integration
Deterministic mechanisms
No reactions of other countries
Mecanisms and policy implementation
scenarii give by comparison teachings
allowing to ask new questions
IV. Global results

Two distinct phases:
–
Maturation


–
Expenditure multiplier
Deepening of deficits
Deployment of innovation effects

Durable Growth
–
Competitiveness
– Internal demand
–
45
The succession of the two phases limit the deficits
IV. Global results
46

GDP deviation from 10.9 % to 22.5%, in mean 15%

Growth Surplus of 0.5% per year

Potential growth Surplus from 20 to 25% in a context
of labour force scarcity
IV. Global results
47

Employment increases of 10 Millions in mean

Research employment increases of 3,3
millions with respect to the baseline in 2030

Research employment increases of 4,5
millions between 2003 and 2030
IV. Global results

Expenditure multiplier (ex-ante) very high 6-8
–

48
Status of R&D expenditures with respect to the
stability pact
Modification of relatives performances of the
different European Countries
IV. Specific results

Scenarii with a financing by the deficits are
better, but limited interpretation of the results
–
49
No feedback of deficits on GDP
IV. Specific results
50

Better performances for Europe in the case
of absolute convergence

Less employment when R&D is totally
realised in the private sector
IV. Specific results

51
Better results (GDP, employment) when productivity
gains are kept by firms
–
Competitiveness
–
Substitution effect favorable to labour
IV. Sectoral Results

52
Contrasted results
–
Equipment goods and chemicals very advantaged
(intensive R&D, Exports)
–
Consumption goods pulled up by internal demand
–
Intermediary goods suffer of productivity gains
IV. Sectoral Results

Importance of public procurements
–
Initial increase of deficits (public, external)
–
But Growth, employment et high multipliers:


53
Relance effect
Concentration of R&D effort on high technological
sectors
IV. Sectoral Results

Better results if R&D effort is concentrated on high
technological sectors:
–
Better R&D productivity
–
High externality transmitters


–
54
Of knowledge (Knowledge spillovers)
Of surplus transfers (Rent Spillovers)
Less productivity growth for high labor intensive sector:
strong employment growth