Michael König: The determinants of R&D decisions and the productivity growth effects of R&D policies

The fraction of R&D active companies has sharply declined in Switzerland but increased in the Netherlands over the 2000-2016 period.

In this paper we analyze the potential reasons for these diverging trends and the implications for productivity growth. Using comparable microdata for Switzerland and the Netherlands, we descriptively show that R&D activity is more concentrated among high-productivity firms in Switzerland than in the Netherlands. We also document that innovation support, either indirect support such as promoting industry-science partnerships in Switzerland or direct support such as the Innovation Box in the Netherlands, seems effective in keeping Swiss and Dutch firms in the R&D market. We then estimate a structural growth model to separately identify the impact of the difficulty of making innovations, R&D costs, and technology diffusion (imitation) on a firm’s R&D decision. We find that the most significant difference between the two countries is the evolution of their R&D costs. Over time, conducting R&D has become more costly for Swiss firms and less costly for Dutch firms. Moreover, our counterfactual policy experiments show a potential increase in the annual growth rate of around 2% had Switzerland had the same environment beneficial to low innovation costs as the Netherlands, while these innovation support measures contributing to an increase of annual growth of a similar amount in the Netherlands.

About the speaker:

Michael D. König is associate professor at the Department of Spatial Economics at VU Amsterdam. He is also a research fellow at the Tinbergen Institute, the Centre for Economic Policy Research (CEPR) and the Swiss Economic Institute (KOF). Prior to joining VU Amsterdam he was a senior research associate at the University of Zurich, and a visiting scholar at Bocconi University, the Stanford Institute for Economic Policy Research (SIEPR) and the Department of Economics at Stanford University.

His research focuses on the economics of innovation and technical change, and how these affect and are being affected by networked relationships between various economic actors, ranging from individuals, firms, sectors to countries. His research combines both theoretical as well as empirical methods, using them to evaluate real world policy instruments.