10/2/2014: Data shows Irish R&D policy is not exactly producing...

Today, Grant Thornton published their review of the Irish R&D Tax Credits policy, available here: http://www.grantthornton.ie/db/Attachments/Review-of-RandD-tax-credit-regime.pdf?utm_content=buffer1e77c&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

Top level conclusions:

• "60% of the companies that responded to the survey were indigenous Irish companies with 40% multinationals"
• "35% of companies conducting R&D activities engaged in joint research projects with other parties in 2011"
• "with 19.5% being activities with higher education or institutes within Ireland and 8% outside Ireland"
• "70% of claims are by companies with less than 50 employees"
• "large companies with employees of more than 250 employees account for 10% of claims made. However they account for 45% of claims on a monetary basis"

"The credit is a largely positive scheme with real value being added to the economy from it."

My view: too much of subsidy to MNCs, too little evidence the scheme is not being used by SMEs to fund activity that would have been funded anyway and too little evidence the scheme is being used to fund genuine R&D rather than business development.

But aside from this, there is little evidence that funding is yielding any serious uptick in intellectual property generation. Here's the latest data from the NewMorningIP on patents filings in Ireland.

Based on quarterly aggregates, in Q4 2013, total number of Irish academic patents hit the lowest reading of 48 and the goal number of filed patents match this performance at 593. Irish inventions overall sunk to the lowest level of 236 (previous low was 252 for Q3 2012, imputed on incomplete data). Patents applications by non-academic filers stood at 188 - the lowest level in data series.

Overall, in 2013, there were 2561 patents applications, of which Irish total filings amounted to 1072 (41.9%) and of which Irish non-academic patents applications were just 860 (33.6%). This is hardly stellar and cannot be deemed sustainable for the economy that is allegedly based on innovation. It also makes clear that current system of R&D incentives and supports, including tax credit, is not working.

27/9/2013: Incumbent Subsidies v Innovation: US evidence on R&D subsidies

I wrote about R&D tax credits before and the fact that some recent research has been throwing a spanner in the works of the Governments around the world actively subsidising R&D and innovation. You can read my musings on the subject here:
http://trueeconomics.blogspot.ie/2013/08/2182013-irelands-potemkin-village.html
and
http://trueeconomics.blogspot.ie/2013/06/662013-irish-school-of-growthology.html
and
http://trueeconomics.blogspot.ie/2013/03/3132013-r-and-tax-policy-income-tax-or.html

New research on the same just out from the Bank of Finland.

"Innovation, Reallocation and Growth" is a paper recently published by the Bank of Finland (Discussion Papers 22, 2013 http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/BoF_DP_1322.pdf) authored by Daron Acemoglu, Ufuk Akcigit, Nicholas Bloom and William Kerr.

From the abstract (emphasis mine):

"We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good Öt to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates."

"We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms."

"On the contrary, substantial improvements (of the order of 5% improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry."

Or put differently, let the creative destruction work. Or even incentivise the creative destruction working (not my preference, though)...