Innovation, Productivity and Public Policy Conference

Innovation is now widely regarded as having a key role to play in Ireland's future growth prospects. Innovation is central to raising productivity, and hence competitiveness, and equally importantly, it is central to Ireland's expanding export sales and successfully entering new export markets. Decisions in relation to innovation are made by individual enterprises. Nevertheless, public policy plays a role in the process by the way it fosters and enables investments in innovation and export drives. New insights relevant to considering how innovation contributes to productivity and growth, as well as implications for innovation policy design, will be discussed at the ESRI Conference "Innovation, Productivity and Public Policy" on Tuesday 16 October. Please find below short embargoed summaries of the three presentations to be given at the Conference, with contact details for the appropriate speaker. Presentation slides will be available to download from our website on the day of the event (16 October). For further information on the Conference please visit our website. Members of the Media are invited to attend the Conference. Knowledge Flows of Innovation in Small Open Economies: Comparing Ireland and Singapore Professor Nola Hewitt-Dundas, Queen's University Belfast This research presents a new perspective on innovation in Ireland by exploring technological knowledge accumulation and the diffusion of knowledge from the mid-1970s to present. A new database of all patents invented in Ireland since 1976 and awarded by either the US or European patent offices (c. 6,000 patents) is examined. Ireland and Singapore are compared in the analysis, as countries for which the average annual growth in patent awards has out-paced that of large OECD countries as well as most other small European countries over the period. In addition, Ireland and Singapore are both small and open economies with industrial policy in both countries having successfully targeted and attracted FDI in similar high-tech sectors since the 1960s. A key difference between them however has been public investment in R&D which in Ireland has been concentrated in the Higher Education sector and in Singapore has taken place primarily in Public Research Institutes. In addition, although both Singapore and Ireland historically targeted similar sectors for FDI, indigenous technological capability in these sectors in Singapore was stronger than found in Ireland. Key findings:

• Patenting in Ireland and Singapore has increased rapidly since the early 1990s with this reflecting growth in R&D investments.
• Knowledge creation in both Ireland and Singapore is dominated by multinational enterprises. This creates a potential reservoir of technological knowledge for indigenous firms to upgrade their technological capability through knowledge flows.
• Indigenous Irish businesses are found to be less likely than Singaporean businesses to build on the knowledge of multinational enterprises located in their country. However, Irish businesses are more likely to build on international knowledge sources.
• The extent to which multinationals acquire knowledge from indigenous firms or from national universities is very limited, albeit this is slightly greater in Ireland than in Singapore. This suggests that the technological capability of indigenous firms in Ireland and Singapore is not sufficiently advanced to contribute to technological developments in foreign-owned firms. There is therefore limited evidence to support arguments for complementarities between indigenous and foreign-owned firms that increase the embeddedness of these multinationals.
• In both Ireland and Singapore, multinationals located in the country draw heavily on the technological knowledge in other multinationals in the country. This is particularly strong in Singapore where two-thirds of technological knowledge flows into multinational firms comes from other multinationals based in Singapore. This relationship is also found in Ireland, albeit to a lesser extent with approximately half of knowledge flows coming from other multinational firms in Ireland.
• The findings suggest that policy to target high-tech FDI has been successful in building a concentration of businesses where externalities of R&D investment are captured by other multinationals. This is likely to help in embedding multinational enterprises in Ireland.
• Less positive, in both Ireland and Singapore, there is limited evidence of the success of policy to build public sector capability as a means of strengthening innovation links with MNEs.

For further information please contact: Prof Nola Hewitt-Dundas,Queen's University Belfast, nm.hewitt@qub.ac.uk;. Innovation and Productivity in Services: Empirical Evidence from Enterprise Surveys Professor Iulia Siedschlag, ESRI and Trinity College Dublin Innovation is of crucial importance for growth and competitiveness in the context of intensified global competition. Understanding determinants of enterprise innovation and productivity is important for designing effective innovation policies. Services account for a growing share of economic activity in developed countries and innovation in services is widely seen as a new source of economic growth. We present key research findings on the links between innovation investment, innovation output and productivity in services based on micro data from two waves of the Community Innovation Survey of enterprises in Ireland over the period 2004 -2008. In addition, we discuss available international evidence from a collaborative European research project focused on the impact of innovation and internationalisation of services on productivity and growth. Key Messages:

• Innovation in service enterprises was found to be linked to higher productivity. The strongest link was for organisational innovation.
• Service enterprises that invested in innovation were more likely large enterprises, enterprises with exporting markets, and enterprises with higher innovation capability. Smaller enterprises and foreign affiliates had a higher innovation investment per employee.
• Service enterprises with successful innovation were more likely to be larger, be engaged in exporting and be involved in co-operation in innovation activities with other enterprises within the same group, with suppliers, with customers and with consultants.
• Evidence for Ireland is broadly in line with international empirical evidence on enterprise innovation and productivity. In contrast to Ireland, service enterprises in Germany and the United Kingdom performed better with respect to translating innovation investment into innovative outputs.
• These findings suggest that enterprise innovation could benefit from policies which enable enterprise growth, exporting, and enhance innovation capability and co-operation in innovation activities with other enterprises and institutions.

Additionality and sustained additionality: Investigating the legacy effects of public support for innovation in Ireland Professor Stephen Roper, Warwick Business School In Ireland, as in many countries, very significant amounts of public funding are devoted to supporting firms' R&D and innovation projects. Often these projects take some years to mature and generate significant returns. Evaluations of such policy, however, are often short-term with the risk of under-estimating the true value of innovation policy leading to a 'policy failure'. Taking a long view, how effective has Irish innovation policy been over the last 20 years? Using data on Irish firms' innovation activities since the mid-1990s, the author examines two research questions. First, is there any evidence of positive short-term effects from such policy on innovation outputs? Second, what are the legacy effects of such policy for the recipient firms? Answering both questions poses some technical challenges related to what are generally called 'selection biases', e.g. the possibility that policy support is provided to firms which are 'better' than the average. To get robust results, a range of best practice econometric approaches and longitudinal data is used. Strong evidence of positive short-term effects from innovation policy were found which increased the average share of firms' sales coming from new products by between 3.1 and 5.0 per cent. This evidence for Ireland is consistent with that for other countries which also suggests the strong and positive short-term effects of innovation support. Strong evidence was also found of some types of legacy effects from innovation policy. In particular, strong evidence was found of a 'quality ladder' type effect, in which firms which receive public support for innovation in one period, and as a result are more innovative in that period, start innovating in subsequent periods from a stronger position. This boosts subsequent sales of innovative products in these firms by around 1.3 per cent per year? over the next three years. The results suggest the value of innovation policy support and the importance of taking a long-term perspective in evaluating innovation policy impacts.

Members of the media are invited to attend the ESRI Conference "Innovation, Productivity and Public Policy" at the Economic and Social Research Institute, Whitaker Square, Sir John Rogerson’s Quay, Dublin 2 on Tuesday 16 October 2012, 1.30 – 17.30 pm. Presentation slides will be available to download from our website on the day of the Conference.