Innovation on Demand Can Public Procurement Drive Market Success?

Transcription

1 Innovation on Demand Can Public Procurement Drive Market Success? by Birgit Aschhoff and Wolfgang Sofka Centre for European Economic Research (ZEW) Mannheim, Germany

2 Potential of public procurement Federal government R&D expenditures to research institutions and universities 6 Hightech Strategy Aho Report Barcelona Strategy Business R&D support by federal government 2 Business expenditures for R&D 38 16% of the combined EU-15 GDP 12% of German GDP Public procurement budget 260 in billion Euro (Data refer to 2004; Source: BMBF (2006): Bundesbericht Forschung 2006, Die Hightech-Strategie für Deutschland)

3 Public Technology Procurement Public procurement consists of purchase of standard and already existing products, like paper or paperclips, and public technology procurement Public technology procurement Purchase of a not-yet-existing product or system whose design and production will require further, if not completely novel, technological development work (Edquist and Hommen, 2000: 5) Functional requirements of the demanded product are predefined by the government, but not the realization or design (see Geroski, 1990: 191)

4 Research Question Comparison of four major types of public policy for innovation Public procurement Regulation R&D subsidies Investments in infrastructure (knowledge production) What are their (relative) effects on innovation? Are these effects specific for particular groups of firms?

5 Characteristics of the four policy tools Public procurement Regulation Research institutions & universities Public R&D subsidies Input money none knowledge money Primary participation incentive sales mandatory access to knowledge cost/risk sharing Selection by state none firm state Objective product/service standard knowledge spillover technology Effect on success market risk reduction market risk reduction technological opportunity technological opportunity Inherent risk idiosyncratic demand egalitarianism idiosyncratic knowledge crowding out of private R&D investments

6 Data Mannheim Innovation Panel (MIP) 2003 Community Innovation Survey (CIS) Quality management across firms, industries and countries Innovation activities and firm characteristics Direct information from heads of R&D departments or innovation management 1,149 firm observations Innovative firms Manufacturing and services

7 Variables and method Dependent variable Share of sales with new to the market products Focus variables Sources of valuable innovation impulses Customer: Public administration, defence or compulsory social security Law and regulation Universities Public funding for innovation projects Control variables R&D expenditures (as a fraction of sales), continuous R&D Internationalization (export share of sales), subsidiary of a foreign firm Firm size (number of employees), firm age, location in East Germany Tobit model regressions

8 Descriptive statistics

9 Results: Tobit estimations Strong effect from public procurement and university spillovers Defense related procurement not significant

10 Finite mixture models Homogeneity Finite Mixture Models Heterogeneity Latent Class Estimation

11 Latent Class Model Probability of outcome y depends upon the conditional probability of belonging to one of K latent classes (with z as the latent variable) based on a vector x of covariate variables and a vector x of predictors. K cov pred cov pred ( i i, i ) = ( i ) ( i, i ) x= 1 f y x x P z x f y z x Size, firm age, location (East Germany) and industry

12 Number of classes Classes LL BIC(LL) AIC(LL) AIC3(LL) No. Par. R² 1-Class -3284, , , , ,05 2-Class -3109, , , , ,14 3-Class -3085, , , , ,47 4-Class -3064, , , , ,85 2 Class solution

13 Probability of class membership Smaller, East German firms in distributive or technological services

14 Latent Class Tobit Regression Public procurement effect is focused at smaller, East German firms in distributive or technological services

15 Conclusions Public policy leverage points from both supply and demand side Public procurement effect stems from general administrative demand Knowledge spillovers from universities as general policy Public procurement as targeted policy instrument Resource limitations Smaller firms in regional areas under economic stress Distributive and technological services

16 Innovation on Demand Can Public Procurement Drive Market Success? by Birgit Aschhoff and Wolfgang Sofka Centre for European Economic Research (ZEW) Mannheim, Germany