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FINNOV - Finance, innovation and growth: changing patterns and policy implications

Description

The Lisbon agenda states that Europe’s future prosperity is dependent on developing a knowledge-based economy driven by innovation. To stimulate the supply of innovation it calls for increased public and private investment in R&D to match the proportions of GDP being invested in R&D by Europe’s major competitors. However the success of this strategy depends equally on the successful translation of innovation into economic growth. Business experimentation is central to these processes, and this ability is central to achieving the objectives of the Lisbon Agenda of 2000 and the new industrial policy in an enlarged European Union. This project will examine key factors that impact on those processes, in particular the interactions between innovation and financial markets. It will lead to a deeper understanding of the complex relationships involved and will inform both policy and practice.

Much of the current debate on financing of innovative companies in Europe is based on models and data derived from experience in the USA, leading to recommendations intended to promote convergence on US structures and practice.

We argue that there is now powerful evidence to suggest that the European situation is in fact different, and that Europe therefore needs to develop its own approach, adapted to its own circumstances. This project will provide empirical evidence and theoretical models to underpin the evolution of a distinctive and self-confident European approach to the financing of innovative businesses.

The ways in which innovative businesses are financed affect not only their own growth and economic performance, but the differential rates of return to owners, managers, workers, investors and financial institutions. They also impact on the evolution of the market as a whole, selection dynamics within the market, the rate of attrition of both new and existing enterprises, and the net contribution from innovative businesses to employment and economic development regionally, nationally and across Europe as a whole. A better understanding of these processes is essential if Europe’s slowly increasing rate of investment in R&D is to deliver the economic outcomes envisaged in the Lisbon agenda.