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Product development increases productivity only after a few years

Jyrki Ali-Yrkkö’s dissertation in the field of economics, "Essays on the Impacts of Technology Development and R&D Subsidies,” will be presented at the Helsinki School of Economics on Friday, April 25, 2008.

Is it possible to increase the research and development (R&D) activities of companies by means of public funding? What impact does R&D have on the productivity of companies? These are among the questions that Ali-Yrkkö examines in his dissertation.

Public R&D funding increases company-financed R&D

Technology development and R&D are seen as important elements in the national economy both in Finland and elsewhere in the world. For example, the Lisbon Treaty aims for three percent of the gross national product of EU member countries to be spent on research and development. In Finland the goal is four percent. The majority of R&D activities, however, is largely realized and financed by companies in Finland and other EU countries. Reaching the goals of this policy thus depends on companies and their behavior.

The research material of the dissertation includes information regarding R&D activities of hundreds of companies. The results indicate that public R&D financing does not generally supersede company-financed R&D but rather complements it, in other words it amplifies it. The scale of impact is almost corresponding; one euro of public R&D finance results in a one euro increase in privately financed R&D activities. This additional impact is greater for large companies than for small companies. The study did not indicate that increasing public R&D funding would have a more significant impact on companies with financial constraints than on companies without financial constraints.

International buyers interested in technological know-how

Public R&D financing has also influenced the amount of company human resources, but the resulting increases in personnel have been limited to R&D personnel. According to the research, Tekes funding only affected the amount of R&D personnel. It is possible, however, that influences on other types personnel can only be perceived in the long term.

In addition, Ali-Yrkkö examines the impact of technology development on company productivity. According to the results, by means of research and development companies can increase their productivity, but impacts will be realized only after a few years. It takes, on average, 3-5 years until the result of R&D activities can be observed in company productivity. This long delay in the benefits of R&D activities must also be taken into account in political actions that aim to advance the R&D activities of companies. The relative successfulness of a policy can also be determined only after several years.

The research results demonstrate that technological know-how of a company makes it an attractive target for company investments. Foreign companies especially have shown interest in buying Finnish enterprises with patents. Alternatively, patents do not seem to attract domestic buyers.

Leena Vuorenmaa | alfa
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