The role of public funding in

R&D&IThe case of Finland

31.10.2007

Markus Sovala, Deputy Budget Director

Economic “miracle” of

Finland

GDP per capita

Finland

OECD

DM 36095, 36097 and 218475

08-2006 Copyright © Tekes

USD in current prices and PPPs

GDP in Finland has grown faster than the

OECD average both before and after the recession.

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

1975 1980 1985 1990 1995 2000 2005

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

Figures for Finland according to new calculations from Statistics Finland.

Sources:: For Finland: ETLA 2006; for OECD: OECD

GDP per capita in 2006

0 10000 20000 30000 40000

France

Sweden

Germany

Great Britain

Japan

Netherlands

Finland

Switzerland

Denmark

United States

Norway

Sources Maddison (2003); IMF and ETLADM 36054, 36095 and 218475

11-2006 Copyright © Tekes

USD, international prices in 2004

0 10,000 20,000 30,000 40,000

Volume index of industrial production

DM 36097, 36054 and 218475

08-2006 Copyright © TekesSources: Eurostat, Statistics Finland, 12 month moving average

90

100

110

120

130

140

150

160

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 20052006

Finland

1995=100

EU 15

Japan

USA

Industrial production has grown faster in Finland than in other developed nations.

Unemployment rate

and general government net lending1975 - 2008**

-10

-5

0

5

10

15

20

75 80 85 90 95 00 05

%

31.8.2007/VM/KO/UL, Sources TK, VM (SK-2007:3)

18486.xls

Unemployment rate

General government

net lending, % of GDP

World Economic Forum (WEF):

Finland is number one!

From capital intensive

production to R&D&I

intensive production

Investments in IndustryFixed Investments and R&D Expenditure

1975 - 2006*

% of value added

0

5

10

15

20

25

30

75 80 85 90 95 00 05

%

R&DExpenditure

Fixedinvestment

Sources: Statistics Finland, Confederation of Finnish Industries, Ministry of Finance16.8.2007/VM/KO/UL

18307.xls

Growth without investments?

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0

LatviaSlovakia

PolandGreece

PortugalLithuaniaHungaryEstonia

SpainIreland

CzechiaSloveniaNorway

NetherlandsGreat Britain

EU 25Belgium

EU 15Canada*)

FranceAustria

GermanyDenmark

USAIcelandJapan*)FinlandSweden

Total R&D funding in

2004

Source: EurostatDM 36109 and 36054

11-2006 Copyright © Tekes

Percentage of GDP

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0%*) 2003

Industrial R&D according to technology

intensity

Technology groups according to the OECD definition.

High tech Medium low techand low tech

Medium high tech

DM 36109 and 36054

08-2005 Copyright © TekesSource: EU Key Figures 2005 on Science, Technology and Innovation

1) 20032) 20023) 2001

0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100

%

Germany 2)

Poland 2)

Spain 2)

Italy 1)

EU 25

Japan 2)

USA 2)

France 2)

Denmark 1)

Netherlands 2)

Slovenia 2)

Sweden 1)

Great Britain 2)

FINLAND 1)

Ireland 3)

%

DM 36109 and 36054

03-2006 Copyright © Tekes

Public sector’s share of total R&D funding

in 2003

Source: Eurostat

%0 10 20 30 40 50 60

JapanBelgiumSwedenFinland

DenmarkIreland

GermanyUSA

Great BritainAustria

EU 15Slovenia

NetherlandsFranceIceland

SpainCzechiaNorway

SlovakiaHungaryPortugal

Poland

Source: Statistics Finland

R&D in Finland

DM 36100

10-2006 Copyright © Tekes

Billion euros

0

1

2

3

4

5

6

85 87 89 91 93 95 97 98 99 00 01 02 03 04 05

0.91.1

1.51.7 1.8

2.2

3.9

4.4

2.9

4.64.8

3.4

5.35.0

5.5Enterprises

Universities

Other public

research

0

1

2

3

4

5

6

83 85 87 89 91 93 95 97 98 99 00 01 02 03 04 05

4.64.4

3.9

3.4

2.9

2.2

1.81.71.5

1.10.9

0.6

4.85.0

5.35.5

Source: Statistics Finland

Funding of R&D expenditureBillion euros

*) Funding from abroad, foundations, other sources

Other funding *)

Enterprises

Public funding

DM 36100 and 218475

10-2006 Copyright © Tekes

Is public R&D&I funding

crowding-out or crowding-

in private funding?

Allocation of the R&D funding in the state

budget in 2007 (%)

TEKES funding for private companies

Year Euros (%) Number of applications (%)

2001 57 30

2002 54 35

2003 39 23

2004 41 27

2005 36 28

2006 42 27

Oct 2007 39 24

Share of rejected applications

Preliminary conclusions Public R&D&I funding can not be a substitute

for private funding, but it may be a complement.

It does matter how public funding is managed.

Marginal returns of R&D&I investments are diminishing. Finnish R&D&I activity is already over funded?

Tax incentives for the R&D&I are sexy, but the Finnish experience shows these are not must.