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The Additionality of Public Support for
Innovation Evidence for Irish Manufacturing Firms
Nola Hewitt-Dundas (QUB) Stephen Roper (ABS)
Paper presented to the Fifth Israeli/British
Irish Regional Science Workshop, Tel Aviv,
Israel, 29th 30th April 2007
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Overview

• Economic Policy Context
• Conceptual Basis
• Data source research methods
• Discussion of Findings
• Key conclusions policy implications

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Regional Policy Context
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Innovation Policy

• Interventionist Policy for RD and Innovation
• Without state support and incentives the degree
  of investment in technology will be less than is
  desirable from the point of view of national
  economic development (Culliton 1992 p. 55).
• EU Objective 1 status ? capability dev,
  infrastructure, RD
• Innovation Support Programmes focus on
  indigenously-owned firms

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Ireland Support for RD and Innovation
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Northern Ireland Support for RD and Innovation

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RD and Innovation Grant Support m pa
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Implications for Research

• Differences in economic policy environments
  Ireland NI
• Targeting of Assistance
• Policy focus on indigenously-owned firms
• Policy focus on stimulating non-innovators to
  innovate - 1st Timers

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Rationale for Interventionist policy

• Additionality effect on business performance
  (Griliches 1995 Mamuneas and Nadiri 1996)
• Reduce the cost of building up knowledge stocks
  (Trajtenberg 2000), enhancing business
  performance (Klette and Johansen 1998), ability
  to conduct future research (Mansfield and Switzer
  1984, Luukkonen 2000)
• Development in Human Resources and innovation
  activity (Freel 2005)
• Absorptive capacity (Veugelers and Cassiman 1999,
  Cassiman and Veugelers 2002)
• Reputational or halo effects (Powell 1998)
• RD cost savings through collaborative RD (Irwin
  and Klenow 1996)

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Focus of this paper - Project-level Additionality

• the decision of a firm either to abandon, go
  ahead with, or modify an innovation investment
  decision in light of the availability of public
  support.
• Extensive Additionality
• Incremental Additionality
• Radical Additionality
• A Priori where the population of firms
  comprises a mix of those undertaking no
  innovation, those undertaking incremental
  innovation and those undertaking radical
  innovation, public support for innovation should
  have positive extensive, incremental and radical
  additionality effects.

Public Support typically a proportion of total
innovation cost
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Data Source Methods

• Innovation (knowledge) production function
• I Innovation output
• X vector of plant level control variables
• knowledge sourcing
• Market position
• Resource base
• Z binary treatment variable
• Instrumental variables approach

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Irish Innovation Panel (IIP)

• 1991 2002 (analysis based on 94 to 02)
• 4 period postal survey
• Manufacturing plants gt10employees
• Avg response 34.5
• c. 56 plants product innovators
• 12 sales new products
• 25 sales new and improved products
• c. 25 plants received public support for product
  dev.

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Findings Average Treatment Effects (ATEs)
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Plant-level variables

• All Firms
• Internal RD
• Supply Chain Knowledge Linkages
• Skill Levels
• Capital Intensity
• Production activity
• Less important
• Scale, Ownership, Plant Vintage

• Indigenous FIrms
• Internal RD
• Supply-chain Knowledge linkages
• Skill Levels
• Production activity
• Less important
• Scale, Vintage, Multi-plant group

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Policy Implications

• Positive effect of public support for product
  development
• Extensive, incremental radical additionality
  effects
• 1 Grant assistance is effective either in
  isolation or as part of a package of innovation
  support measures
• Other factors
• In house RD and supply chain knowledge linkages
• Initiatives to strengthen internal RD ?
  innovation and absorptive capacity
• 3 Initiatives to support knowledge linkages
  likely to also encourage innovation
• Organisational Context, skill base capital
  investment
• 4 Measures to support skill development ?
  effectiveness of innovation through knowledge
  absorption commercial exploitation