deadweight losses, tax distortions etc. Analysing all aspects of investments in R&D is therefore
not that straightforward.
Substantial empirical uncertainty is associated with the relationship between R&D spending and
economic growth. Hence, estimates of the effects of R&D spending on growth vary greatly, and
- for government spending – may even be negative.
Furthermore, the empirical literature typically takes a macro-perspective (i.e., relating per capita
growth to the ratio of public R&D spending to GDP), whereas little evidence is available on the
microeconomic imperfections that government programmes are supposed to alleviate.
The European Council in Lisbon set the strategic goal of transforming the European Union by
2010 into the most competitive and dynamic knowledge-based economy in the world, capable of
sustainable growth with more and better jobs and greater social cohesion.
Since then, many decisions have been taken in order to implement the Lisbon Strategy. In
particular, the Barcelona Council meeting in 2002 set some clear and specific targets that would
allow for monitoring progress and achievement of the more general goals. It was agreed that
Member States should strive to achieve 3 pct. of GDP to be spent on R&D and innovation by
2010 of which one third should be financed by the Government sector and two-thirds by the
Business sector.
Figure 1 - R&D expenditure in EU vs. USA by source of finance (GERD)0,00,51,01,52,02,53,01990 1992 1994 1996 1998 2000 20020,00,51,01,52,02,53,0Go v er n m en t Ot her* Indust ry Tot alEU15 gross expenditure on R&D
Per cent of GDP Per cent of GDP0,00,51,01,52,02,53,01990 1992 1994 1996 1998 2000 20020,00,51,01,52,02,53,0Go v er n m en t Ot her* Indust ry Tot alUSA gross expenditure on R&D
Per cent of GDP Per cent of GDPSource: OECD “Main Science and Technology Indicators”, 2004-2.
Compared to the US, Europe is far behind. Only with regard to governmental spending Europe is
on par with the US.
It should be kept in mind that more than half of the US government’s R&D budget is allocated
to defence, cf. figure 2. In most European countries, defence R&D plays a minor role. As a
result, international comparisons differ, depending on whether defence R&D is included or not.
Since the demand for defence R&D fluctuates with changing political situations its long-term
trend varies differently from that of civil R&D.