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1
R&D in the European Strategy:the case of the 3% effort of
BARCELONA
CESAERPOLITECNICO DI MILANO
Milano 12-14 Nov 2008
2
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
3
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
4
I.1 What can we learn from the new growth theories? 1/2
We can act on long term growth
R&D Policies are important
Precise description of endogenous technical progress
5
I.1 What can we learn from the new growth theories? 2/2
Possibilities of non decreasing returns
Knowledge externalities– Social returns of research are greater than private
returns
– Spontaneous research level is insufficient
6
I.1 New growth theories in applied modelling
Two types of innovations– Process– Product (quality)
Endogenous technical progress– Learning– R&D
Knowledge externalities (Knowledge Spillovers)– Inter-sectoral– Inter-national
7
I.2 The technical progress in NEMESIS 1/9
From R&D to knowledge stock
From knowledge to innovations
From innovation to economic performances
8
I.2 The technical progress in NEMESIS 2/9From R&D to Knowledge stock
KNOW
Foreign Public R&D StockR&D Stocks of Foreign
SectorsPublic R&D Stock
R&D Stock of Other Sectors
R&D Stock of the Sector
Technology Flow MatricesTechnology Flows
Matrices
R&D StockR&D Expenditures Decay
9
I.2 The technical progress in NEMESIS 3/9From knowledge to innovation
Product Innovation (Quality)
ΔKNOW
Process Innovation
10
I.2 The technical progress in NEMESIS 4/9From innovations to economic performances
Process innovation:
Supply
Demand
Productivity Growth Increase of supply
Process InnovationPrice Decrease
volume/price elasticity of
the demand ε
Increase of the demand
11
I.2 The technical progress in NEMESIS 5/9From 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
12
I.2 The technical progress in NEMESIS 6/9From innovations to economic performances
Product Innovation:
Supply
Demand
Product Innovation (Quality)
Increase of efficiency by volume unit
Decrease of the efficiency unit price
Variation of volume demand
Increase of efficiency unit demand
13
I.2 The technical progress in NEMESIS 7/9From innovations to economic performances
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
14
I.2 The technical progress in NEMESIS 8/9Technical progress equations
Process innovations
Quality (product) innovations
TFP KNOWa
TFP KNOW
'QUAL KNOW
aQUAL KNOW
15
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 aY KNOW Y KNOW
16
I.2 Estimations of the elasticity of 1/2 Production with respect to R&D and KNOW
Econometric studies
– α similar role than β
,Y A SRD F K L
Y SRD
Y SRD
17
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])
– Between 0.05 et 0.20
18
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:
– β=0.1– β=0.2
19
I.3 An important mechanism
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
20
I.3 Implementation of R&D policies
Public or private financing
Public procurements
Private research vs 1/3-2/3
Absolute or relative convergence of countries
21
I.3 Summary of realised simulations
Public-sector
Finance for
Research
Private-sector
Finance for
Research
100 %
Research
β = 0.05 + 0.5*f(R/Y) 2010 : 0.075 ; 2030 : 0.124
Public-sector orders
V0.1
V2.0V1.0V0.0V5.0V4.0
V0.4
Relative Convergence V0.3
V0.2
β = 0.025 + f(R/Y) 2010 : 0.075 ; 2030 : 0.141
= 0.10
Tot
al c
onve
rgen
ce
Productivity gains:100 % to Employees
Productivity gains:33 % to Employees
Productivity gains:0 % to Employees
22
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)
23
II.1 Macro-economic results for Europe
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
Total Employment Research Employment GDP Budget Balance
24
II.1 Macro-economic results for Europe
GDP, Employment and Public Financing Capacity for Europe (in %)
-2
0
2
4
6
8
10
12
14
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
GDP (Europe)
Employment (Europe)
PFC in % GDP (EUROPE)
25
II.1 Macro-economic results for Europe
GDP and its Counterparts for Europe (in % Deviation w.r.t. the Baseline)
-5
0
5
10
15
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Final Cons. (Europe)
Firms' Investment (Europe)
Exports (Europe)
Imports (Europe)
GDP (Europe)
Employment (Europe)
26
II.2 Sectoral results for Europe
Production, Employment and Investment for European Sectors in 2030 (in % Deviation w.r.t. the Baseline)
-5
0
5
10
15
20
25
Agr
icul
ture
Coa
l & C
oke
Oil
& G
as E
xtr.
Gas
Dis
tr.
Ref
ined
Oil
Ele
ctric
ity
Fer
. &
Non
Fer
. M
et.
Non
Met
. M
in P
rodu
cts
Che
mic
al P
rod.
Met
al P
rod.
Agr
. &
Ind
. M
ach.
Off
ice
Mac
h.
Ele
ctr.
Goo
ds
Tra
nsp.
Equ
ip.
Foo
d,D
rink
& T
ob.
Tex
t.,
Clo
thes
& F
ootw
.
Pap
er &
Prin
t. P
rod.
Rub
ber
& P
last
ic
Oth
er M
anuf
.
Con
stru
ctio
n
Dis
trib
utio
n
Lodg
ing
& C
ater
ing
Inla
nd T
rans
p.
Sea
& A
ir T
rans
p.
Oth
er T
rans
p.
Com
mun
icat
ion
Ban
k, F
inan
ce &
Ins
uran
ce
Oth
er M
arke
t se
rvic
es
Non
mar
ket
serv
ices
EuropeProduction
EuropeEmployment
EuropeInvestment
27
II.2 Sectoral results for Europe
Results for Chemical Products (in % Deviation w.r.t. the Baseline)
-10
-5
0
5
10
15
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Europe:Production ChemicalProd.
Europe:Imports ChemicalProd.
Europe:Exports ChemicalProd.
Europe:Employment ChemicalProd.
Europe:Total FactorProductivity Chemical Prod.
28
II.2 Sectoral results for Europe
Results for Electrical Goods (in % Deviation w.r.t. the Baseline)
-15
-10
-5
0
5
10
15
20
25
2002
Europe:Production Electr.Goods
Europe:Imports Electr.Goods
Europe:Exports Electr.Goods
Europe:EmploymentElectr. Goods
Europe:Total FactorProductivity Electr. Goods
29
II.2 Sectoral results for Europe
Results for Office Machines (in % Deviation w.r.t. the Baseline)
-10
-5
0
5
10
15
20
25
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Europe:Production OfficeMach.
Europe:Imports Office Mach.
Europe:Exports Office Mach.
Europe:Employment OfficeMach.
Europe:Total FactorProductivity Office Mach.
30
II.2 Sectoral results for Europe
Results for Transport Equipements (in % Deviation w.r.t. the Baseline)
-10
-5
0
5
10
15
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Europe:Production Transp.Equip.
Europe:Imports Transp. Equip.
Europe:Exports Transp. Equip.
Europe:Employment Transp.Equip.
Europe:Total FactorProductivity Transp. Equip.
31
II.2 Sectoral results for Europe
Results for Construction (in % Deviation w.r.t. the Baseline)
-6
-4
-2
0
2
4
6
8
10
12
14
2002
Europe:ProductionConstruction
Europe:ImportsConstruction
Europe:ExportsConstruction
Europe:EmploymentConstruction
Europe:Total FactorProductivity Construction
32
II.2 Sectoral results for Europe
Results for Others Market Services (in % Deviation w.r.t. the Baseline)
-5
0
5
10
15
20
25
2002
Europe:Production OtherMarket Services
Europe:Imports Other MarketServices
Europe:Exports Other MarketServices
Europe:Employment OtherMarket Services
Europe:Total FactorProductivity Other MarketServices
33
II.3 Macro-economic results for France
GdP And its Components for France (in % Deviation w.r.t. the Baseline)
-2
0
2
4
6
8
10
12
14
2002
GDP (Europe)
Final Consumption
Firms' Investment
Exports
Imports
GDP
34
II.3 Sectoral results for France
Sector Chemicals for France: (in % Deviation w.r.t. the Baseline)
0
2
4
6
8
10
12
14
16
18
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Europe:Production Chemical Prod.
France:Production Chemical Prod.
France:Imports Chemical Prod.
France:Exports Chemical Prod.
France:Employment Chemical Prod.
35
II.3 Sectoral results for France
Sector Electrical Goods for France: (in % Deviation w.r.t. the Baseline)
-2
0
2
4
6
8
10
12
14
16
18
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Europe:Production Electr. Goods
France:Production Electr. Goods
France:Imports Electr. Goods
France:Exports Electr. Goods
France:Employment Electr. Goods
36
II.3 Sectoral results for France
Sector Transport Equipment for France: (in % Deviation w.r.t. the Baseline)
-2
0
2
4
6
8
10
12
14
16
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Europe:Production Transp. Equip.
France:Production Transp. Equip.
France:Imports Transp. Equip.
France:Exports Transp. Equip.
France:Employment Transp. Equip.
37
II.3 Sectoral results for France
Sector Construction for France (in % Deviation w.r.t. the Baseline)
-2
0
2
4
6
8
10
12
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Europe:Production Construction
France:Production Construction
France:Employment Construction
38
II.3 Sectoral results for France
Sectors Other Market Services for France (in % Deviation w.r.t. the Baseline)
-5
0
5
10
15
20
25
2002
Europe:Production Other Market Services
France:Production Other Market Services
France:Imports Other Market Services
France:Exports Other Market Services
France:Employment Other Market Services
39
III Other results
EUROPE 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%
FRANCE 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
V00 (33% to wages) V30 (0% to wages) V40 (100% to wages)
Sharing of productivity gains
40
III Other results
Variantes Partage de la Valeur Ajouté (Ecarts en % p/r à la base)
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
33%, GDP
33%, Emploi
0%, GDP
0%, Emploi
100%, GDP
100%, Emploi
41
III Other results
EUROPE 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%
FRANCE 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
Sensivity analysis on β
V10 : β = 0.025 + f(R/Y) 2010 :
0.075 ; 2030 : 0.141
V00 : β = 0.05 + 0.5*f(R/Y)
2010 : 0.075 ; 2030 : 0.124
V20 : β = 0.1
42
III Other results
Variantes en fonction de beta (Ecarts en % p/r à la base)
0,00
5,00
10,00
15,00
20,00
25,00
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Beta=F(RD/Y), GDP
Beta=F(RD/Y), Employment
Beta=1, GDP
Beta=1, Employment
Beta=2, GDP
Beta=2, Employment
43
III Other results
EUROPE 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%
FRANCE 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
V00 : Private Financing V01 : Public Financing V02 : Public Orders
Policy Implementation scenarii
44
IV. Conclusions
Exercise limited by some assumptions– No finance integration– Deterministic mechanisms– No reactions of other countries
Mecanisms and policy implementation scenarii give by comparison teachings allowing to ask new questions
45
IV. Global results
Two distinct phases:– Maturation
Expenditure multiplier Deepening of deficits
– Deployment of innovation effects Durable Growth
– Competitiveness– Internal demand
– The succession of the two phases limit the deficits
46
IV. Global results
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
47
IV. Global results
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
48
IV. Global results
Expenditure multiplier (ex-ante) very high 6-8– Status of R&D expenditures with respect to the
stability pact
Modification of relatives performances of the different European Countries
49
IV. Specific results
Scenarii with a financing by the deficits are better, but limited interpretation of the results
– No feedback of deficits on GDP
50
IV. Specific results
Better performances for Europe in the case of absolute convergence
Less employment when R&D is totally realised in the private sector
51
IV. Specific results
Better results (GDP, employment) when productivity gains are kept by firms
– Competitiveness
– Substitution effect favorable to labour
52
IV. Sectoral Results
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
53
IV. Sectoral Results
Importance of public procurements
– Initial increase of deficits (public, external)
– But Growth, employment et high multipliers: Relance effect Concentration of R&D effort on high technological
sectors
54
IV. Sectoral Results
Better results if R&D effort is concentrated on high technological sectors:
– Better R&D productivity
– High externality transmitters Of knowledge (Knowledge spillovers) Of surplus transfers (Rent Spillovers)
– Less productivity growth for high labor intensive sector: strong employment growth