It is a known fact that there are intersectoral and international R&D spillovers that make the social rate of return to R&D exceed the private rate of return. Spillovers can be negative as in the case of market stealing but most of the evidence so far points to positive spillovers of the rent-increasing type or the knowledge-increasing type.
In examining the effectiveness of R&D subsidies or tax incentives, it would be important to take these spillovers into account, in this way moving from the micro to the macro level. How spillovers get transmitted across sectors and countries would be the object of a separate project and beyond the scope of the present one. One such issue would be the role of multinational firms in transmitting spillovers. While international knowledge diffusion through multinational firms active in various European countries is likely to increase the return to R&D and R&D policies at the European level, multinational firms’ coordination of R&D activities across (European countries) also offers a challenge to European policies. But notwithstanding this, it can be an interesting exercise to compare the estimates of the spillover obtained using various proximity measures such as trade, foreign direct investment, R&D collaborations, co-patenting, citations, and spatial correlation coefficients in patent, R&D program, or personnel qualification spaces. We would then be able to evaluate likely ranges of the macro repercussions of the direct and indirect government interventions, first within the countries for which we analyse the effectiveness in the micro part of this analysis, and then across the European countries that are included in our analysis. The specific sectors for which we can perform such an analysis remain open, and are dependent on which sectors the country-specific data covers.
The aim of this work package is to make the insights from recent advances in micro-models on knowledge spillovers available to macro-modellers, to improve the assessment of the contribution of R&D to growth.