FINNOV

In Europe 2020: A European strategy for smart, sustainable, and inclusive growth, the European Commission has set a target for 3% of the EU’s GDP to be invested in R&D. This target, which is supposed to help place the EU on a par with the United States in the knowledge-based economy, was at the center of the Lisbon Agenda in 2000. Ten years later the target remains elusive. Among EU nations, only Finland and Sweden devote in excess of 3% of their GDP to R&D.

How then should we view the 3% target, and what does it mean for the EU’s efforts to achieve its broader socioeconomic objectives under Europe 2020? Research in the 7th Framework Project on Finance, Innovation, and Growth (FINNOV), has studied the role of R&D in the innovation process, and its impact on equitable and stable economic growth. Based on our research, we view the 3% target as a problematic indicator. It diverts attention from the vast differences in R&D spending across industries and even across firms within an industry. It also can mask significant differences in the complementary levels of R&D investments by governments and businesses that are required to generate superior economic performance. Finally due to its high costs it may even cause negative growth for those firms that do not have the complementary characteristics that are needed for R&D to have any effect on firm growth. Read the FINNOV Position Paper in full.