1. Madrid - 3 July 2008 Europes R&D: missing the wrong target Bruegel POLICY BRIEF 2008/3, March Bruno VAN POTTELSBERGHE (ULB, Solvay Business School, Bruegel) – Working Paper with Azèle Mathieu – Working Paper with Didier François – Other references

3. The R&D intensity target Since 2002…The Lisbon Agenda – 3% of GDP should be devoted to R&D – One third being funded by government 1 Observation 2 bémol 2 hypotheses

4. Europes R&D: Missing the wrong target Source: van Pottelsberghe, Bruegel Policy Brief 2008/03,

5. Total R&D intensity over 25 years EUs R&D intensity has been flat lining under 2% for 25 years Source: van Pottelsberghe, Bruegel Policy Brief 2008/03,

6. EU(27) in 2006US (51) in 2004 Maximum Sweden 3.8% New Mexico 8.0% Minimum Cyprus and Romania 0.42% and 0.46% Wyoming and South Dakota 0.40% and 0.50% Median across states1.2%1.9% There are strong variations across States, but the distribution is always higher in the US, with 7 States above 4% Source: van Pottelsberghe, Bruegel Policy Brief 2008/03,

7. The R&D intensity target Since 2002…The Lisbon Agenda – 3% of GDP should be devoted to R&D – One third being funded by government 1 Observation 2 bémol 2 hypotheses

8. Government-funded R&D actually dropped over the past ten years None of the EU member states has fulfilled its self-set commitment, as no country actually devotes one percent of its GDP to funding public or business (through subsidies and procurement) performed research activities. The only countries that are close to the 1% target are Sweden, Austria and Finland. A large number of countries have actually reduced their government funding of R&D as a percentage of GDP. A drop also occurred in the US and Japan over the same period, but it was largely compensated for by a more than proportional increase in business-funded R&D, which was not the case for EU27.

9. Source: van Pottelsberghe, Bruegel Policy Brief 2008/03,

10. And national reform programs are frequently overambitious, especially in countries with low R&D intensity Source: van Pottelsberghe, Bruegel Policy Brief 2008/03,

11. Technological specialization must be accounted for when analysing countries R&D intensity. Cf. Mathieu and van Pottelsberghe, 2008 Source: Mathieu & BVP, 2008

12. RI i,jt = β j J + φ t T (1) RI i,jt = β j J + α i I + φ t T (2) 18 countries (j) with 21 industries (i) over five years (t)

13. Country effect without and with industry dummies. Cf. Mathieu and van Pottelsberghe, 2008, 22 industries, 2000-2004, all estimates include time dummies Adj. R-2 Without ID: 32% With ID: 69% Source: Mathieu and van Pottelsberghe, 2008, new results

14. Regression on 18 countries, 5 years (2000-2004), 21 industries Intercept Timme dummies (ref: 2000) Country dummies (ref: GE) Sectoral dummies (ref: Mach. and equip.) None of the time dummies are significant Source: Mathieu and van Pottelsberghe, 2008, new results

15. R&D intensity, 2000-2004 Higher than Germany Like Germany Below Germany

16. EU wrt USA and Japan (1998-2002, 3 regions, 21 industries)

17. Source: Mathieu and van Pottelsberghe, 2008, R&D intensity, 1998-2002

18. Comparative advantage of countries in emerging technology fields (share of patents in the field in the country divided by the share of the field in total OECD patents). EPO patent applications; Priority Year 2003 Source: D. Guellec and D. Pilat, Productivity Growth and innovation in OECD, forthcoming, 08

19. The R&D intensity target Since 2002…The Lisbon Agenda – 3% of GDP should be devoted to R&D – One third being funded by government 1 Observation 2 bémol 2 hypotheses

20. Why do some countries have a higher R&D intensity? Expected return… – Market size: need more integration (USA)? No market for technology Fragmented systems in Europe: costs and complexity

21. Patenting Processes The case of the European Patent Office

22. The EPS - Cost consequences Source: François and van Pottelsberghe, 2006, forthcoming Source: van Pottelsberghe and François, 2006 The lack of an integrated market for technology induces very high costs of patenting and a complex managerial burden on European innovators

23. London Agreement (1 st May 2008) * Patent granted by EPO has claims translated into 3 official languages of the EPO: English, French and German; ** State having no official language in common with one of the official language at the EPO, may require that translation of description to be supplied in the official language of the EPO prescribed by that state; Language in common with the EPO (8) D: NO C: YES* D: YES C: YES D: EN** C: YES D: NO C: YES Non-Signatories of LA (19) Patent D C Description Claims BE, CH, DE, FR, LI, LU, MC, UK LV, SIHR, DK, IS, NL, SE AT, BG, CZ, CY, EE, ES, FI, GR, HU, IE, IT, LT, MT, NO, PL, PT, RO, SK, TR Signatories of LA (15) NO language in common with the EPO (7)

24. The impact of London Agreement on the cost of patenting in Europe, May 2008 (*) EPO-3: DE, FR, UK - with more than 70% of the EP patents validated in 2003; EPO-6: DE, FR, UK, CH, IT, NL - more than 30%; EPO-13: DE, FR, UK, CH, IT, NL, AT, BE, ES, DK, FI, IE, SE - more than 12%; EPO-34: all the EPC contracting states as of May 2008; Source: van Pottelsberghe and Mejer, 2008, forthcoming 26% 29%29% 39% 24%24% 48% 21% 62%62% Relative cost saving

25. Cost structure of direct patent fillings and 10 year of maintenance, May 2008 (in US PPP) Source: van Pottelsberghe and Mejer, 2008, forthcoming

26. 20062008 EPO-138.5 (10.8) 9.0 (11.4) EPO-13(LA15)-6.9 (8.7) EPO-65.2 (6.5) 5.6 (7.1) EPO-6 (LA15)-4.0 (5.1) JPO0.8 (1.9) 0.8 (2.0) KIPO0.7 (1.7) SIPO0.5 (1.2) CIPO0.5 (0.6) IN-PO0.5 (1.1) 0.4 (1.0) BR-PO0.4 (1.0) 0.4 (0.9) AU-PO0.3 (0.4) Procedural and translation costs relative to the US (per claim*) Note: *Numbers in brackets indicate procedural and transaction cost per claim relative to the US. Source: van Pottelsberghe and Mejer, 2008, forthcoming

27. Millions of claims filled v. procedural and translation cost per claim per million capita (2006)* Note: * The axis x-shows cost per claim per million capita, expressed in US PPPs 2006, and includes process and translation costs. The axis-y shows the total number of claims filled in 2006 in each patent office. The line indicates the trend between three main regional offices: EPO, JPO and USPTO. Source: van Pottelsberghe and Mejer, 2008, forthcoming EPO-6(LP15)

28. Why do some countries have a higher R&D intensity? Expected return… – Market size: need more integration (USA)? No market for technology Fragmented systems in Europe: costs and complexity – More Academic research (Sweden)? Provides ideas to the market Does not compete on the market for researchers

29. Academic research provides new ideas to the market, inducing more applied research and development for the business sector Source: van Pottelsberghe, Bruegel Policy Brief 2008/03,

30. Why do we have a US and a Swedish exception? Expected return… – Market size: need more integration (USA)? No market for technology Fragmented systems in Europe: costs and complexity – More Academic research (Sweden)? Provides ideas to the market Does not compete on the market for researchers – Other science and technology policies? Subsidies, tax credits… Framework conditions, laws, ….

31. + + 0 - Impact on business R&D Impact on growth nr +/- ++ + Learning from evaluations Guellec and van Pottelsberghe (2003, 2004) Regulation : FDA,...., PATENTING SYSTEM

32. Concluding remarks International comparisons of R&D intensity must account for technological specialization Very few government have met their own agenda Sweden and the USA however stand well above other countries (as opposed to South Korea, Finland, Denmark) Other factors are : – Market size: need more integration (USA)? – More academic research (Sweden)? – Other science and technology policies? Subsidies, tax credits… Framework conditions, laws, ….

33. van Pottelsberghe de la Potterie B. and D. François, 2008, The cost factor in patent systems, Journal of Industry, Competition and Trade, in press. van Pottelsberghe de la Potterie B., M. Mejer, 2008, The London Agreement and the relative cost of patenting in Europe, CEPR Discussion Paper, forthcoming. Guellec D. and B. van Pottelsberghe de la Potterie, 2004, From R&D to productivity growth: do the institutional settings and the sources of funds of R&D matter?, Oxford Bulletin of Economics and Statistics, 66(3), 353- 376. Guellec D. and B. van Pottelsberghe de la Potterie, 2003, The impact of public R&D expenditure on business R&D, Economics of Innovation and New Technology, 12(3), 225-244. Mathieu A. and B. van Pottelsberghe de la Potterie, 2008, A note on the drivers of R&D intensity, CEPR Discussion Paper, 6684. Guellec D. and B. van Pottelsberghe de la Potterie, 2007, The Economics of the European Patent System, Oxford University Press, Oxford, February, 250 p. References