IPTS Working Papers on Corporate R&D and Innovation 07/2010
Innovation in the European Union remains weak according to a number of key ‘input’ indicators, especially R&D investment by the business sector, and there are relatively few signs of progress. From a firm-level perspective, Europe’s innovation gap relative to the US results from an inappropriate industrial structure in which new firms do not play a significant role, especially in new high-tech sectors. This view of a structural EU innovation deficit has many supporters. But it has received little or no thorough empirical investigation. This paper aims to address this ‘evidence gap’. We find that compared to the US, the EU has fewer young firms among its leading innovators. But this accounts for only about one-third of the EU-US differential. The largest part of the differential is due to the fact that young leading innovators in the EU are less R&D intensive than their US counterparts. Further unravelling shows that this is almost entirely due to a different sectoral composition. We thus confirm that the EU-US private R&D gap is indeed mostly a structural issue.