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Diego Comin (CEPR, Dartmouth) Georg Licht (ZEW) Maikel Pellens (ZEW, KU LEUVEN)

Do Companies Benefit from Public Research Organizations? The impact of the Fraunhofer Society in Germany. Diego Comin (CEPR, Dartmouth) Georg Licht (ZEW) Maikel Pellens (ZEW, KU LEUVEN) Torben Schubert (U Lund, FhG ISI). MOTIVATION.

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Diego Comin (CEPR, Dartmouth) Georg Licht (ZEW) Maikel Pellens (ZEW, KU LEUVEN)

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  1. Do Companies Benefit from Public Research Organizations?The impact of the Fraunhofer Society in Germany Diego Comin (CEPR, Dartmouth) Georg Licht (ZEW) Maikel Pellens (ZEW, KU LEUVEN) Torben Schubert (U Lund, FhG ISI)

  2. MOTIVATION • R&D policyhastypicallyfocused on compensatingfor private underinvestment • Lower private costof R&D: subsidies, taxcredits • Investdirectly in scientificknowledge • Capibilitytoapply R&D towardsproductivitygrowthmatterstoo (Ortega-Argiles et al. 2014; Castellani et al. 2016) • Mostlyoverlooked in policy(but gainingattention: EC 2017; ESIR 2017) • Call for „learning-oriented“ innovationpolicy • Oneway: investment in appliedresearchorganizazions • Leading countries with strong APRO: NL (TNO), FI (VTT), DE (FhG), SE (RISE) • But anecdotal - littleempiricalworkstudyingthis

  3. RELATEDLITERATURE • Large body on positive effectsoffiscal R&D incentives(Berger, 1993; Bloom et al. 2002; BronziniandPiselli, 2016, van Cappelen et al. 2012, Czarnitzki et al, 2011; David et al. 2000; Hall, 2003; Knoll et al. 2014, Cowling 2016) • Research on investment in publicresearchaspolicyleverlargelyfocusedofuniversities & basicknowledge(Belderbos, 2004; Cardamone et al. 2015; Darby et al. 2004; Lööf & Broström, 2008; Maietta 2015; MonjonandWaelbroeck 2003; MizzioandDerwick, 2002) • Idea: generatespilloverstobroadereconomy (e.g. collaboration) • Well-documented positive effects • Studies on extra-universitarypublicresearchorganizationsremainsparse • Robin & Schubert (2013); Kaiser and Kuhn (2012) analyzeeffect on firm performance, but cannotdistinguish U andother PRO

  4. (APPLIED) PUBLIC RESEARCH • Whywould extra-universitary (A)PRO be different? • Focus on appliedresearch & technologicalco-development • Closertomarket, easiertoappropriate • Need less AC toabsorbthanwith U (Toole et al. 2014) •  U and APRO collaborationwithfirmsmighthave different effects • Strongerdirectimpact • Higher disseminationtosmaller, less R&D intensefirms  Different policy rationale forfunding U versus (A)PRO U: overcomepublicgoodmarketfailureof R&D (A)PRO: overcomeknowledgeexploitationbottlenecks

  5. INSTITUTIONAL CONTEXT • Germany: strong extra-university research landscape Helmholtz Association, Max Planck society, Leibniz Association, Fraunhofer Society Employs 35% of PRO R&D employees • FraunhoferGesellschaft • Est. 1949 • Focus on applied research & knowledge transfer • 24.500 employees, budget > 2bn • Contract research with industry large part of funding (30%, ~ 600 m) • 67 research institutes in 7 thematic clusters: ICT, life sciences, light & surfaces, microelectronics, production, defense & security, materials

  6. Data FhG Projects German C.I.S. Panel • Match on nameandaddress • Excludeforeignclientsaswellaspublicinstitutes • Information on innovationandperformance • Representativeannual sample of German firmswith at least 5 employees • Select firmsobserved at least threetimes • ConfidentialFhGcontractdatabase • 131.158 contracts • 1997-2014 • Duration, volume, institute, description

  7. FhG Projects: overview Average projectlasts 8 monthsandcosts 37k EUR (FhGrevenue) 42% ofcollaboratingfirmsappearonce; 31% 3+ times Tendencytowardsappliedand well-definedprojects, but coverfullresearchspectrum Keyword analysis: technologygeneration (75%) technologyimplementation (25%)

  8. Empiricalstrategy • RQ: howdoescollaborationwithFhGaffect firm performance? • Collaboration: FhGexpenditures • Performance: Turnoverandproductivitygrowth rate [avg: 6.7% & 6.6%] • (Productivity: addedvalue per employee) • Additionally: does firm innovationstrategychange? • Change in innovative sales [avg: -0.01%pt] • Change in high-skilledemployees [avg: +0.2%pt] • Specification:

  9. DESCRIPTIVE STATISTICS

  10. Empiricalstrategy • Identification challenge: unobservedselectionintoFhG • Ourapproach: identificationthroughscaleheteroscedasticityLewbel (2012) • This case: first-stage heteroscedasticitydrivenby firm size, • therefore: • where is estimated first-stage error term.

  11. Empiricalstrategy

  12. Empiricalstrategy

  13. Results Notes: * p <0.10, ** p<0.05, *** p<0.01. Regression additionally includes controls for R&D intensity, ln(age), and ln(employees), as well as exporter, group, East-German, industry, and year dummies.

  14. Results Notes: * p <0.10, ** p<0.05, *** p<0.01. Regression additionally includes controls for R&D intensity, ln(age), and ln(employees), as well as exporter, group, East-German, industry, and year dummies.

  15. Additional results: firm andprojectcharacteristics • Firm characteristics: • Small firmslittlebenefit, but youngfirmsprofitmorethanolder • Manufacturing andservicesfirmsbothbenefit, but strongerproductivitygainsforservices (lessturnovergains) • Also effectsforlow-R&D intensityfirms (but not for non-R&D performers) • Project characteristics: • Innovation success & turnovergrowthdrivenbysmallerprojectsfocusing on newtechnologycreation & repeatedinteraction • Efficiency gainsdrivenby large technologyimplementationprojects – no additional benefitsfromfurtherinterations

  16. Conclusions • Empiricalevidenceofeffectsof Fraunhofer research on firm performance • Unique paneldataof German firmswith Fraunhofer contractsIdentificationthroughscaleheteroscedasticity • Policyimplications • Support R&D diffusionalongsideinput • Investing in APRO such asFhGseemseffectivechannel • Macroeconomicextrapolation: FhGcontractsyield 2.2 bn EUR ofvalueaddedcomparedtoannualbudgetof 2.1 bn (upperboundestimate) • Future research • Further robustnesstesting – dynamicselection? • Simulatelong-term effects

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