lecture#6: 31/10/2003 “the economic returns to basic research and the benefits of...

Lecture#6: 31/10/2003 “The economic returns to basic research and the benefits of University-Industry Relationships”

Slide#1

““The Economic Returns to The Economic Returns to

Basic Research and the Basic Research and the

Benefits of University-Benefits of University-

Industry Industry

RelationshipsRelationships””

By: José Coutinho, Marco Bravo e Paulo Rebelo


Slide#2

Contents:Contents:1. AIMS OF THE REPORT;

2. BACKGROUND;

3. KEY FINDINGS;

4. AN INTUITIVE APPROACH;

5. INNOVATION IN THE MODERN ECONOMY: BEYOND THE

INTUITIVE APPROACH;

6. MEASURING AND QUANTIFYING THE RETURNS OF BASIC

RESEARCH TO THE ECONOMY;

7. UNIVERSITY-INDUSTRY RELATIONSHIPS;


Slide#3

1. AIMS OF THE REPORT1. AIMS OF THE REPORT

• Up-to-date information returns to academic research and

university-industry relationships;

• Need to analyse and understand the relationships between public

research and innovation effective government policy in this area

would benefit from being suported by a much stronger research

base than currently exists.

“In the study of technology transfer, the neophyte and the veteran

researcher are easily distinguished. The neophyte is the one who is

not confused”, (Bozeman 2000).


Slide#4

• Linear Model:

• Non-linear Model:

Potential Market

Technology Platforms

Distribution & Market

Detailed Design &

Test

Redesign &

Production

Invention / Analytical

Design

Knowledge(both in-firm and available elsewere)

Research

Design & Development

Idea Research Production Operation


Slide#5

2. BACKGROUND2. BACKGROUND

An intuitive approach: it should be possible to calculate the returns to public

research;

Innovation is not linear: involve interactions with public research understanding

many benefits of public research for the economy and the channels through which these

benefits come about;

More realistic approach: examine in detail research-innovation relationships,

science and technology. returns to basic research are probably much than those of the

intuitive linear approach.

Context

Intuitive Approach

Innovation is not linear

A more realistic approach


Slide#6

Returns to public research:

• High rates (about 20-50% or ). Diverse

economic sectors and countries mostly find

substantial returns;

• Limits to quantification: – Wide acceptance of the limits;

– Other research benefits:

1. Creating strategic value;

2. Analysing channels of communication between research and private sector;

3. Many social benefits;

3. KEY FINDINGS3. KEY FINDINGS


Slide#7

4. AN INTUITIVE APPROACH4. AN INTUITIVE APPROACH

LINEAR MODEL:LINEAR MODEL:

1. Science is mainly seen as a source of new information;

2. Information is published openly (as is usual with academic research

findings) low cost input into economic processes;

3. Link between science and technology: scientific information

creation of new technologies used in economic activity;

4. Science in the creation of economic returns quantify the economic

benefit attributed to the basic science elements;


Slide#8

Linear model is simple...

...but has limitations:– does not allow technology leading science (science is often not the source for

new ideas, but is used to understand new technologies and complete new

projects);

– Ignores the existence of industry publications – industry is doing science too!

– Ignores the need for capability and capacity at the industry end for university-

industry relationships to work;

– Obfuscates variability in university-industry relationships between industry

sectors, and the mechanisms through which knowledge transfer occurs;

– Ignores ‘non-linear’ channels through which knowledge and benefits arise

from university-industry relationships.


Slide#9

• Role of innovation and technical change fostering firms’, industries’

and countries’ capabilities for wealth creation;

• Policy makers need to know how best to facilitate innovative strategies;

• Analysis of NSI innovative performance of a country (growth

potential), depend upon the development of a balanced ‘system’ of

knowledge production and distribution...

5. INNOVATION IN THE MODERN ECONOMY: 5. INNOVATION IN THE MODERN ECONOMY:

BEYOND THE INTUITIVE APPROACHBEYOND THE INTUITIVE APPROACH

NON-LINEAR MODELNON-LINEAR MODEL


Slide#10

6. MEASURING AND QUANTIFYING THE RETURNS OF 6. MEASURING AND QUANTIFYING THE RETURNS OF

BASIC RESEARCH TO THE ECONOMYBASIC RESEARCH TO THE ECONOMY

1. A short overview of the research, including recently published results

• The analysis has been constrained to the linear model

• although this does not allow for complete measures, it is done simply so that

there is something that can be measured.

2. Detailed summaries of a selection of important recent papers presenting results

of modelling and quantification efforts.


Slide#11

SOCIAL RATE OF RETURN TO PUBLICLY FUNDED SOCIAL RATE OF RETURN TO PUBLICLY FUNDED

RESEARCH AND DEVELOPMENTRESEARCH AND DEVELOPMENT

• The linear model of the relationship between science and innovation

suggests that science contributes knowledge for application in the innovation

process.

• Social investments in science can thus be expected to increase social welfare

and ‘if such returns are traced, we will be able to account for the return on

scientific investment’ (Steinmueller 1994: 58).

• While the identification and characterization of the flow of benefits from

public research is in itself useful, numerous attempts have been made to

quantify the returns from public research.

• Griliches (1958) pioneered the measurement of social returns to research

investment in this way.


Slide#12

PUBLISHED ESTIMATES OF SOCIAL RATE OF RETURN PUBLISHED ESTIMATES OF SOCIAL RATE OF RETURN

TO PUBLICLY FUNDED RESEARCH AND TO PUBLICLY FUNDED RESEARCH AND

DEVELOPMENTDEVELOPMENT


Slide#13

ESTIMATES OF PARTIAL-INDICATOR ELASTICITIESESTIMATES OF PARTIAL-INDICATOR ELASTICITIES

• There is a range of problems associated with measuring comprehensive

economic returns to public R&D

• Academic debate about these problems has encouraged researchers to adopt a

more modest approach focusing on measuring:

– the relationship between public funding and

– specific desirable outcomes, such as the level of business R&D and

innovation.


Slide#14

ESTIMATES OF PARTIAL-INDICATOR ELASTICITIESESTIMATES OF PARTIAL-INDICATOR ELASTICITIES

(TABLE 2)(TABLE 2)


Slide#15

Manfield (1991)Manfield (1991)

• 11% of new products and 9% of new processes could not have been

developed in the absence of the academic research without substantial delay,

amounting to 3% and 1% of sales respectively;

• 2.1% of sales for new products and 1.6% of new processes would have been

lost in the absence of the academic research;

• Rate of return from academic research = 28%;

1998:

• 15% of new products and 11% of new processes could not have been

developed (without a substantial delay) in the absence of academic research;

• Innovations that could not have developed without academic research

accounted for 5% of total sales for the firms;

• Time delay from academic research to industrial practice has shortened from 7

years to 6.


Slide#16

Recent papers: overview

• In a large German study Beise and Stahl (1999) obtained results similar to

Mansfield (1991), with the exception that they did not calculate a rate of

return.

• Cockburn and Henderson (2000) report a 30 percent minimum return to

publicly funded pharmaceuticals research.

• Also working in the pharmaceuticals sector, but employing a different

approach, Toole (2000) finds that a 1% increase in the stock of basic research

ultimately leads to a 2.0% to 2.4% increase in the number of commercially

available compounds.


Slide#17


• In an important study using OECD data Guellec and Van Pottelsberghe

(2000) produced a range of findings concerning the relationship between the

public and private funding of research. The primary concern addressed was

whether public funding crowds out private funding of research. In addition to

the discussion below see Table 2 for a short summary of the results.

– They identify four possible ways for governments to fund R&D.

• Funding businesses directly to undertake research (either by means of

procurement programmes or as grants);

• Providing tax-based incentives for business R&D;

• Perform R&D themselves in public laboratories;

• Funding universities to conduct research.


Slide#18


• Also pursuing this line of enquiry, David et al. (2000) conducted a substantial

review of the econometric literature addressing the question of whether public

R&D is a complement or a substitute for private R&D.

• In a French study Autant-Bernard (2001) finds that public research increases

private innovation both directly and indirectly by increasing private research.

These effects are geographically localised.

• Tijssen (2001) aimed to identify the degree to which innovations are ‘science

dependent’ and found that approximately 20 percent of private sector

innovations are partially based on public sector research.


Slide#19

Difficulties with measuring economic returns to academic research:

• Wide scope of the benefits + many complex and often indirect channels

economic returns very difficult to measure;

• Most measurement attempts are based on the linear model fail to capture

most of the complex reality of the relationship between science and innovation;

• Productivity improvements measured in ratio inputs/outputs complicated and

delayed link academic research/economic returns very difficult to

measure/identify inputs and outputs;

• Difficulties: Outputs (market price for new goods/services don´t include

spillovers + improvement in product quality- consumer utility, is likely not to be

entirely reflected) | Inputs (high time before new scientific knowledge-tangible

economic effect + many channels (public research influences private sector

productivity)


Slide#20

7. UNIVERSITY-INDUSTRY RELATIONSHIPS7. UNIVERSITY-INDUSTRY RELATIONSHIPS• Understand returns to public research analyse relationships between universities

and firms;

• Public science is part of a larger network of knowledge creation many more

benefits than simply new information;

• Public research number of benefits (tangible outputs & sources of strategic value)

to the economy and to innovation measuring them is difficult!

• Benefits + sources of strategic value + firms/public research relationships come

about through various channels;

• University/industry relationships:

– support, stimulate or impede their development;

– Have been improving over the years;

• Governments ‘framework conditions’ favourable

to industry-university relationships encourage

development of channels through which these relations can

develop;


Slide#21

Science and the economy: scoping the benefitsBenefits from public research for innovation:

1. Producing new scientific information;

2. Training skilled graduates;

3. Supporting new scientific networks and stimulating interaction;

4. Expanding the capacity for problem-solving;

5. Producing new instrumentation and methodologies/techniques;

6. Creating new firms;

7. Providing social knowledge;

8. Enhanced credibility for firms using independent testing facilities at universities;

9. Enhanced commercial credibility through being linked to a university;

20% of industrial R&D managers use instruments/techniques generated by

public research in their own projects within the previous 3 years


Slide#22

BENEFIT- “Further Evidence”:

• Growing need for firms to have knowledge about the social and regulatory

pressures that will partly determine succeed or fail of innovations (public

reactions to new technologies can affect their trajectories);

• Use of social knowledge is beginning to emerge (45% research institutions

collaborated with industry - analysis of environment/framework for

innovations);

A new benefit: Access to unique facilities:

• Industry gains access to unique facilities held and developed at universities

widely disseminated for use and development in industry;


Slide#23

Research as a source of strategic value:

• Research as capability: ‘good ideas are useless if the skills needed to use

them do not exist’(Conceição and Heitor 1999: 46);

• Research as variety: ‘the variety of demands being placed on universities

is a reason to believe that the higher education system itself also needs to

be diversified’ (Conceição and Heitor 1999) – Change requires

diversity in terms of competences;

• Publicly funded research= improve system-wide capability (qualitative

research skills) and variety (creation of options and diversity);

Capability and variety determine the capacity

within a firm or innovation system;


Slide#24

• R&D within firms has 2 functions:

1.allows new knowledge creation;

2.enhances their ability to assimilate

and exploit existing external

knowledge (Cohen and Levinthal 1989);


Slide#25

Channels of communication between universities and the

economy:

• Much of economic literature: connections between

universities/firms come as ‘externalities’ of public

research;

• This idea has been criticised NEW mechanisms of

linkage need to be analysed;

• Communication channels – formal and informal, direct

and indirect, deliberate and unplanned (effect changes

over time and are affected by geographic proximity);


Slide#26

Principal channels of communications:

a) Codification/artefacts: publications, patents, prototypes;

b) Cooperation: joint ventures, personnel exchanges;

c) Contacts: meetings and conferences, informal interaction,

science parks, industrial liaison offices, funded networks,

customer links (universities as customers), sponsored

university posts, studentships, part-time teaching;

d) Contracts: licences, contract research, consulting and

universities using equipment in spin-off firms, product testing,

business support;

These links provide benefits in both directions, indicating further

evidence of the complexity of university-industry relations


Slide#27

Conclusions- channels of communication:

• Existing range of communication channels between public research/

private sector;

• Linkage research/higher education capabilities in the economy

ensures a flow of skilled graduates into the economy;

• Public research stimulates the capabilities of the private sector;

• Creating and maintaining variety, public research helps maintain the

diversity of options vital to a flexible innovation system;

• Firms see many of these channels of communication as important for

deriving value this line of enquiry could be fruitful in the future;

• Many channels remains sparse (especially recent ones) restricts ability

to support policy decisions;


Slide#28

Although difficult to quantify, research benefits

economy - probably significantly more than

narrow calculations would suggest...


Slide#29

In Portugal...In Portugal...

INGENIUM (II series, Nr. 77 August/September 2003)

“Superior teaching reforms and

professional competences”


Slide#30

...more information on the ...more information on the

subjectsubject ...see our report... REFERENCES:

I. Scott, Alister et al (2001), “The Economic Returns to Basic Research and the Benefits of University-Industry Relationships”. SPRU- Science and

Technology Policy Research, University of Sussex;

II. Conceição, Pedro et al (2000), “Science, Technology and Innovation Policy – Opportunities and Challenges for the Knowledge Economy”. Being

Digital: The Unavoidable Transformation of Research Universities, p. 81-86;

III. Conceição, Pedro et al (2000), “Science, Technology and Innovation Policy – Opportunities and Challenges for the Knowledge Economy”.

Industry-University Linkage and the Role of Universities in the 21st Century, p. 87-98;

IV. Conceição, Pedro et al (2000), “Science, Technology and Innovation Policy – Opportunities and Challenges for the Knowledge Economy”.

Entrepreneurial Universities: Policies, Strategies, and Practice, p. 119-128;

V. Caraça, J. et al (2000), “Towards a public policy for the research university in Portugal”;

VI. Conceição, Pedro and Heitor, Manuel V., “Knowledge for Inclusive Development”. Sustainable Societal Learning: A Discussion of the Role of

the University, p.49-78;

VII. Conceição, Pedro et al, “Knowledge for Inclusive Development”. Should Universities be Economic Institutions? p. 30-47;

VIII. Kennedy, Donald (1997), “Academic Duty”. To Reach Behind the Walls, p. 241-265;

IX. Arrow, Kenneth J. et al, “Education in a Research University”, p.101-111;

X. Tierney, William G. (1998), “The responsive university: restructing for high performance”, The Responsive University in Twenty-first Century, p.

162-173;

XI. Kim, Junmo (2002), “Network building between research institutions and small and medium enterprises (SME´s): dynamics of innovation

network building and implications for a policy option”.

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