Overview

1. Impact of the R&D-promoting Activities of the Swiss Innovation Agency CTI on Firm Innovation Performance: An Evaluation Based on a Matched-pairs Analysis

2. Overview • Motivation and aim of the study • Brief description of the investigation method • Data • Patterns of CTI promotion 2000-2002 • Results I: effects of subsidizing • Results II: effects of the relative magnitude of the subsidy • Some policy-related issues

3. Motivation and aim of the study • Motivation: - The „Commision of Technology and Innovation“ (CTI) is the most important government agency for the promotion of innovation in Switzerland - The CTI is supporting mainly R&D co-operation projects from all scientific fields by funding the public partner of such a co-operation, a university or a public research institution, the private partner being an enterprise agreeing to contribute to this project by at least the amount of funds offered by the CTI (private contribution of at least 50%; „bottom-up“ principle of support) - The projects to be subsidized are selected by committees of experts that evaluate the applications by some „excellence“ criteria

4. - There have been recently also programmes for the promotion of specific technologies (e.g. MedTech, TopNan21) but this kind of specific support has always been of minor importance but until now there is no quantitatively oriented evaluation of the effectiveness of this policy - Recently, matching methods based on direct comparisons of participating and non-participating agents, first used in labour market evaluations, were applied in the evaluation of technology programmes, e.g. Czarnitzki/Fier 2002, Almus/Czarnitzki 2003 for Germany; Pointner/Rammer (2005) for Austria; Görg/Strobl (2007) for Ireland  interesting methodological issue

5. Aim - Investigation of the effectiveness of the CTI promotion policy in terms of innovation performance - Main hypothesis: enterprises that have been supported by the CTI would show on average a significantly higher innovation performance than “structural similar” firms without such support

6. Brief description of the investigation approach • Identification of the subsidized firms out of the CTI database • Collection of innovation data for the subsidized firms similar to those already existing for a sample of innovating firms of the Swiss Innovation Survey 2002 (reference period: 2000-02), these other innovating firms building the pool of available non-subsidized firms • Estimation of propensity scores with respect to the likelihood of receiving a CTI subsidy • Test of the condition of „common support“ • Application of four different matching methods in order to find the structurally „twin“ firms for every subsidized firm, these firms building the group of matched non-subsidized firms (control group)

7. Test on the statistical significance of the difference of the means of seven different innovation measures of the subsidized firms and the matched non-subsidized firms of the control group: - significantly positive difference  positive impact - significantly negative difference  negative impact - insignificant difference  no impact • Construction of a subsidy quotient: amount of R&D subsidy divided by the R&D budget of the firm in the same period • Distinction of firms with a high (higher than the median) and a low (lower than the median) subsidy quotient

8. Test on the statistical significance of the difference of the differences of the means of the innovation variables of the subsidized firms and the matched non-subsidized firms (of high- and low-subsidy firms): (given that the differences in the above-discussed case are significantly positive): - significantly positive difference  higher impact in high- than in low-subsidy firms - significantly negative difference  lower impact in high- than in low-subsidy firms - insignificant difference  no difference between low- and high-subsidy firms

9. Data • CTI database: - 634 subsidized R&D projects that were finished between January 1, 2000 and December 31, 2002 (after exclusion of projects of start-ups, non-profit organizations and mergers as well as firms that ceased to exist by December 2003) - 53% of projects were finished until July 1, 2001, 78% until December 31, 2001. - 307 subsidized firms - 185 subsidized firms filled up a shortened version of the questionnaire of the Swiss Innovation Survey 2002 in December 2003 + 14 subsidized firms were identified among the participants of the 2002 Survey = 199 firms for this study (64.8% of all subsidized firms) • KOF database: - 996 firms that participated to the Innovation Survey 2002 and reported the introduction of innovations in the period 20000-2002

10. Innovation variables: - R&D expenditures as a percentage of sales - (Self-assessed) importance of introduced innovations from a technical point of view - (Self-assessed) importance of introduced innovations from a economic point of view - Percentage reduction of average variable production costs due to process innovation - Sales of significantly improved or modified (already existing) products as a percentage of sales - Sales of products new to the firm or to the market as a percentage of sales - Sales of products new to the market worldwide as a percentage of total sales

11. Patterns of CTI promotion 2000-2002 • Table: Subsidized firms by scientific field 2000-2002 Scientific field Number of firms Percentage Construction technology 11 5.5 Biology 7 3.5 Electrical machinery/electronics 12 6.0 Information technology 21 10.6 Machinery/apparatus construction 23 11.6 Material sciences 48 24.1 Microelectronics 21 10.6 Nanotechnology 6 3.0 Process engineering 16 8.0 Production/management concepts 14 7.0 Other 20 10.1 Total 199 100.0

12. Table: Volume of subsidy by scientific field 2000-2002 Scientific field Percentage of total Construction technology 3.1 Biology 4.5 Electrical machinery/electronics 5.4 Information technology 14.3 Machinery/apparatus construction 18.8 Material sciences 11.6 Microelectronics 10.6 Nanotechnology 3.8 Process engineering 7.2 Production/management concepts 7.0 Other 13.8 Total 120’853’491 Swiss francs (190’621 Swiss francs per project)

13. Results I: effects of subsidizing • Table: Summary of results for various matching methods [significantly higher means of subsidized than non-subsidized firms (after matching)] Innovation variable ‚Nearest ‚Caliper‘ ‚Kernel‘ ‚Local linear Neighbour‘ regression‘ R&D/sales yes yes yes yes Technical importance yes yes yes yes Economic importance no yes yes yes Cost reduction yes yes yes yes Improved products yes yes yes yes New products yes yes yes yes Products new to market yes yes yes yes  In 27 out of 28 cases significantly higher innovation performance of subsidized firms (5% test level)

14. Results II: effects of the relative magnitude of the subsidy • Table: Summary of results for various matching methods [significantly higher differences of differences of means of subsidized and non-subsidized firms (after matching) for high- than low-subsidy firms] Innovation variable ‚Nearest ‚Caliper‘ ‚Kernel‘ ‚Local linear Neighbour‘ regression‘ R&D/sales no no no no Technical importance yes yes yes yes Economic importance no no no no Cost reduction yes yes yes yes Improved products yes yes yes yes New products yes yes yes yes Product new to market yes yes yes yes  In 20 out of 28 cases significantly higher innovation performance of high-subsidy firms than low-subsidy firms as compared to non-subsidized firms (10% test level)

15. - For the variable R&D/sales we found a negative difference of differences: negative correlation of the subsidy quotient with the R&D/sales quotient • firms investing (relatively) much in R&D tend to apply for a (relatively) small amount of subsidies? negative correlation of the subsidy quotient with firm size; positive correlation of the R&D/sales quotient with firm size • Large firms have high R&D/sales quotients and low subsidy quotients, small firms low R&D/sales and high subsidy quotients, as a consequence of CTI policy? • The question remains still open!

16. Some policy-related issues • The present analysis yielded some information on three policy-related issues: (a) Kind of enterprises that received subsidies from the CTI: mainly SMEs in machinery, electronics and instruments and with a broad technological orietation, covering also currently fashionabale fields such as biotechnology and nanotechnology • in accordance with explicit CTI goals (promotion primarily of SMEs according to the „bottom-up principle“, thus without an explicit strategy of promoting specific technologies) • in accordance to the general principles of Swiss technology policy tending to be „non-activist“, providing primarily for the improvement of framework conditions for private innovation activities (b) Overall effectiveness of CTI promotion policy: CTI promotion seems to have improved the innovation performance of supported firms in the period 2000-2002

17. (c) Relationship between subsidy quotient and policy effectiveness: The magnitude of the impact correlated positively with the relative size of financial support (as measured by the quotient of the volume of financial support to the volume of a supported firm‘s own R&D expenditures) • Impact of CTI promotion policy on the economy: Even if a policy measure is successful from a microeconomic point of view, it still remains an open question if it is also relevant in macroeconomic terms. In the case of the CTI policy investigated in his study is questionable if an amount of about 100 mio. Swiss francs of additional R&D support per annum (i.e. an amount equal to the current total CTI budget) could have a discernible impact on an economy that invested about 19 billion Swiss francs in R&D in 2004