since (according to a World bank study2) they appear to be associated with less private investment, higher consumer prices and greater corruption.
which the World bank finds is generally more flexible in advanced countries than in developing economies, limits management flexibility and leads to smaller firm size and less research and development as well as less investment in technology.
In this regard the impact of the forthcoming Figure 2. Venture capital investment, 1999-2002 Percentage of GDP Note:
or limit international investment in venture capital they should be reviewed with a view to easing or eliminating them.
and those who require finance, particularly for small-scale investment. Regional and local equity initiatives (e g. regional funds) are
therefore appropriate for such types of investment. Such equity programmes should be created in parallel with the development and support of regional and local business angel networks as well as business incubators.
Access to liquid international stock markets and an investment community that has expertise in venture capital-backed initial public offerings avoids the need to create new institutions.
Clusters are localised innovation systems where increasing private and social returns on public and private investment result from physical
US GU 12.9 14.4 16.0 15.8 21.9 19.1 PROMOTING ENTREPRENEURSHIP AND INNOVATIVE SMES IN A GLOBAL ECONOMY OECD 2004 23 development, the regional attractors of knowledgeintensive foreign direct investment,
and is often an essential strategic move for SMES with large investments in intellectual property. and poses challenges.
Governments can also promote inward foreign direct investment which can serve as a vehicle for SMES to access international markets indirectly by joining the supply chains of multinational enterprises.
Indeed, foreign direct investment is often an efficient way to diffuse technology and better business methods to SMES and enhance their international competitiveness. especially non-tariff barriers.
Promote the role that foreign direct investment can play as a vehicle for SMES to access international markets.
encourage investment in new technological infrastructure, content and applications; and ensure neutrality across competing and developing PROMOTING ENTREPRENEURSHIP
and remote areas could complement private investment where appropriate, provided it does not preempt private sector initiative
complement private investment with public financial assistance to expand coverage for under-served groups and remote areas.
and developing economies need to strengthen their capacity to take advantage of trade and investment opportunities.
which countries grow is their ability to integrate with the global economy through trade and investment.
While governments make trade and investment policies, it is enterprises that trade and invest. Therefore, supply-side bottlenecks in the trade and investment areas and the way in which governments, development partners and the private sector itself address these constraints have direct implications for the economic growth potential of transition and developing countries.
SMES have an important role in contributing to development and poverty reduction. Most enterprises in transition and developing countries are SMES.
national, and global markets require substantial investments in sustainable development of institutional and physical infrastructure
AND INNOVATIVE SMES IN A GLOBAL ECONOMY 34 OECD 2004 Trade and investment capacities of SMES must be strengthened.
and investment opportunities and reap the benefits of the international trading system. This means they need to be competitive and productive.
as well as to build their trade and investment capacity. Business support agencies (including financial institutions) must be oriented customer
The benefits of foreign direct investment to local SMES should be maximised. The potential benefits of foreign direct investment to host economies include sources of external capital
technology and knowledge transfer, job generation, skills enhancement and enterprise development through linkages and spillover effects.
cash grants to promising suppliers to help with initial investment costs (Ireland; and subsidized training and consultancy necessary for enhancing supplier capability (Chinese Taipei.
Development partners need to recognize that better attention to local conditions is necessary for trade and investment capacity building in transition and developing economies.
so that trade and investment policies and standard setting are aligned with development co-operation objectives and policies.
Spillovers of knowledge and management skills to local firms are one of most critical benefits of foreign direct investment for host countries.
Support policy frameworks and multinational enterprise behaviour that facilitate such spillovers and better document real-world cases to increase public understanding of the contribution of foreign direct investment in progression
Enterprise Investment Scheme) 2 590 Total 7 932 (as a per cent of GDP)( 0. 8) PROMOTING ENTREPRENEURSHIP
along with investment in equipment enhances the likelihood of having both process and product innovation. Both these kinds of innovation have a positive impact on firm's productivity, especially process innovation.
) Or does the explanation lie in the evergreen motto that Italian firms exhibit insufficient R&d investment (European commission, 2006?
the size distribution on Italian firms could help to explain why Italy is lagging behind in terms of aggregate R&d investment.
one should look at the results of R&d investment: training, technology adoption, sales of products new to the market or the firm.
while the likelihood of having process innovation is linked directly to firm's investment in fixed capital.
or missing investment. 5 We adopt the OECD definition for high-and low-tech industries. High-tech industries:
Italian firms display a significantly lower R&d intensity but roughly comparable investment intensities. These figures can be explained partially by the different firm size distribution within each country:
Given the low volatility of R&d investment over time, the results were very similar to those reported below. 7 7
and R&d investment at the firm level, see Cohen and Klepper, 1996). 3. 2. The knowledge production function In the second step,
The only exception is the investment rate, which is assumed to be related to process innovation but not to product innovation.
investment in research is fundamental for product innovation, but at the same time, it increases firm's ability to absorb
We also note that investment intensity is associated positively with process innovation in both high and low tech firms.
We defer a fuller discussion of the issues associated with the presence of investment in these equations until after we present the productivity results. 3. 3. The productivity equation In the third and final step of the model,
ki is investment intensity, our proxy for physical capital, PRODI and PROCI are knowledge inputs, proxied by product and process innovation indicators respectively.
whether or not it is accompanied by process innovation. 11 Results are reported in Table 5 for specifications with and without investment as a proxy for capital;
Our preferred specifications (1a, 2a, 3a) include investment intensity. When investment is included not in the regression, process innovation displays a sizeable and positive impact on productivity for all the categories of firms under exam, column (1),
(2) and (3). Process innovators have a productivity level approximately two and one half times that of non-innovators, ceteris paribus.
On the contrary, when investment is included, the coefficients of process innovation are not significant, because the same investment variable was included in the previous step in order to predict process innovation.
Thus the coefficient of process innovation in the productivity equation already encompasses the effect of investment in new machinery and equipment However,
because the investment rate is a better measure than the process innovation dummy, when both are included,
it tends to dominate. Product innovation enhances productivity considerably, although to a lesser extent than process innovation. The impact is slightly stronger for high-tech firms.
Table A3 in the appendix also shows that the contribution of product innovation to productivity is much more robust to the inclusion of investment intensity
whether or not investment intensity is used included in the second step. 11 The first is estimated probability of process and not product from the bivariate probit model in Table 4,
For high-tech firms only, age impacts productivity negatively. 3. 4. Investment and innovation In our preferred specification in Table 4, we assumed that capital investment
In fact, we found a small marginal impact of investment on process innovation that was approximately the same for high and low-tech industries (0. 05.
Because the assumption that investment is associated with process and not with product innovation may be somewhat arbitrary,
whether investment is devoted to process innovation only (column 1), to product innovation only (column 2),
In the bottom panel of the table, we report an alternative specification of the productivity equation without investment.
column (3) suggests that physical investment has a small (0. 02) positive impact on product innovation as well.
it can be noted that the inclusion of investment wipes out the significance of process innovation,
since investment is one of its main determinants, but not of product innovation, which is more dependent on R&d investment.
Excluding investment from the productivity equation reveals that the process innovation associated with investment is more relevant for productivity than predicted product innovation (compare the process innovation coefficients for step 3 in columns 1 and 3). 3
. 5. Further robustness checks The estimation method used in the body of the paper is sequential, with three steps:
Table A4 also shows the results of another experiment--in this paper we chose to proxy capital intensity by investment intensity,
constructed from investment using the usual declining balance method with a depreciation rate of 5 per cent
Column (3) simply replaces investment 12 The sample size in this table is reduced 9, 014 from 9,
while column (4) uses investment as an instrument for process innovation, but capital in the production function.
Column (5) includes both investment and capital in both equations. The results are somewhat encouraging:
investment enters only via its impact on process innovation. On the other hand, investment is a better predictor of process innovation,
although capital still plays a role. However, recall that innovation is measured over the preceding three years,
so that some of the investment associated with process innovation is likely to be included already in beginning of year capital.
Our conclusion is that there is a strong association of process innovation with capital investment, and that such process innovation has a large impact on productivity. 3. 6. Comparison to Griffith et al. 2006 The results shown in the previous section can help in shedding some light on the R&d innovation productivity relationship in Italian
Investment intensity is somewhat more strongly related to process innovation than in the other countries. Also noteworthy is that for Italy,
In the productivity equation, only investment intensity enters, although product innovation has a large but insignificant impact, larger than that for any of the other countries.
Investment in new equipment and machinery matters more for process innovation than for product innovation.
Cohen and Levinthal (1989) show that R&d investments develop the firm's ability to identify,
but process innovation exerts the largest effect, via the associated investment. Moreover, larger and older firms seem to be, to a certain extent, less productive, ceteris paribus.
or even social and cultural norms can also influence investment in innovation. Choosing among these alternatives definitively is beyond the scope of this paper,
There is limited evidence that lower rates of R&d investment in larger Italian firms is due to the fact that they face a higher cost of capital than other firms in continental Europe.
In a comparative analysis, Hall and Oriani (2006) find high marginal stock market values for Italian R&d investment in large firms that do not have a majority shareholder
which carries the implication that investment in these firms may not be profit driven. These conclusions suggests that a bank-centered capital market system,
. and R. Oriani (2006), Does the Market value R&d Investment by European Firms? Evidence from a Panel of Manufacturing Firms in France, Germany,
. and D. Siegel (1991), The Impact of R&d Investment on Productivity: New Evidence using Linked R&d-LRD Data, Economic Inquiry, Vol. 29 (2), pp. 203-228.
mean/median*4. 99/4. 94 4. 94/4. 85 Investment intensity: mean/median*7. 90/4. 05 6. 92/4. 01 Public support (in%)45.49 50.51 Regional competitors (in%)16.84 14.87 National competitors (in%)42.24 41.37 European
mean/median*4. 93/4. 89 5. 02/4. 96 Investment intensity: mean/median*6. 22/3. 36 8. 62/4. 38 Public support (in%)46.27 45.16 Regional competitors (in%)12.30 18.75 National competitors (in%)36.45 44.68 European
) Investment per employee 0. 125***0. 050 0. 120***0. 047 0. 129***0. 051 (in logs)( 0. 011)( 0. 021)( 0
. 083)( 0. 093)( 0. 149)( 0. 200)( 0. 118)( 0. 122) Investment per employee 0. 099***0. 073***0. 109***in logs
8, 377 Process innovation equation R&d intensity 0. 303***0. 260***0. 281***0. 161***0. 146***0. 192***Investment
equation Investment intensity 0. 130***0. 109***0. 061***0. 059***0. 129 0. 109***Process Innovation 0. 069**0.
Investment intensity: investment in machinery per employee, in logs. Public support: dummy variable that takes value 1
if the firm has received a subsidy during the three years of the survey. Regional National European International (non EU) competitors:
137.7 143.4 173.8 187.1 Investment per employee (mean) 6. 0 8. 3 8. 3 6. 3 8.
045)( 0. 045)( 0. 045) Investment intensity 0. 125***0. 050-0. 137***0. 055-(0. 011)( 0. 011) Step
***0. 252 (0. 045)( 0. 046)( 0. 046)( 0. 045) Investment intensity-0. 021*0. 008 0. 055***0. 020
-(0. 011)( 0. 011) Step 3-Productivity including investment in the equation Predicted process inno 0.
***0. 554***0. 599***0. 538***0. 093)( 0. 087)( 0. 095)( 0. 086) Investment intensity 0. 099***0. 099
***0. 093***0. 105***0. 010)( 0. 006)( 0. 009)( 0. 006) Step 3-Productivity without investment in the equation Predicted process inno
Specifications (1)-(4) encompass alternative assumptions for investment, whether it is devoted to process or product innovation, neither,
or both. 36 Table A4-Robustness check using lagged capital and ML estimation (9014 observations)( 1)( 2)( 3)( 4)( 5) with investment with investment with capital investment
***0. 389***0. 048)( 0. 074)( 0. 078)( 0. 073)( 0. 075) Log investment 0. 131***0. 142***0. 145
)( 0. 314)( 0. 370) Log investment 0. 081***0. 072***0. 018 per employee (0. 011)( 0. 017)( 0. 015) Log
thereby making SMES in these industries very cautious about innovations that require large capital investments.
which means higher and more continuous investment in incremental innovation (March-Chorda et al. 2002). ) Wright et al.
because investments are less in R and more in D, such as in design and engineering tools (CAD), prototypes, customization, etc.
Due to the labor intensive nature of services, typically service innovations require much less capital investment.
and need less investment on patents and licenses for the development of new services (Brouwer and Kleinknecht, 1997).
Though capital investment may be low, organizational aspects play a larger role in the success of service innovation.
) Thus, investments in process-enabling IT can yield multiple benefits, increasing the generation of new ideas,
It is accepted now generally that these investments have been largely unsuccessful. There are several reasons for this.
"Customer power, strategic investment, and the failure of leading firms.""Strategic Management Journal 17 (3): 197-218.
17 The Foreign Direct Investment Strategy...18 Policy implications: Broadening Government Support and Coping with the Diversity of Needs...
statistics on trade flows (exports and imports), foreign direct investment, international capital flows, and inter-country labour mobility.
Investment in innovative activities seems to be on the rise in SMES. The National Science Foundation (1999) shows that total expenditures for industrial R&d by SMES has increased by almost three times between 1985 and 1995 in the United states,
and not limited to formal R&d investments. 20. In a more systematic approach to understanding innovation in SMES
The CIS has shown that the pattern of innovation in SMES is mostly non-R&d investment based.
Only as firm size increases does the importance of R&d investment in innovation increase too.
whose investments in and use of innovations cannot be uniformly characterised. SMES fall roughly into four subgroups.
(which may or may not involve own investments in R&d). -The information technology strategy, which makes innovative uses of information technology
-The foreign direct investment strategy, in which SMES exploit firm-specific ownership advantages abroad. 29.
the relationship between R&d investments and patenting is very strong. The most innovative countries, such as the United states, Japan and Germany, also tend to undertake high investments in R&d.
By contrast little patent activity is associated with developing countries which have very low R&d expenditures.
therefore able to appropriate some of the returns accruing to investments in new knowledge made externally.
in order to recoup your R&d investment.""11"The Little Guys Are Making It Big Overseas,"Business week, 27 february 1989, pp. 67-69.12 Ibid.
Foreign direct investment plays a central role in these companies. And their fiveyear revenue growth was 16.2,
They investment abroad in plant equipment, and technology, and they investment in people. Even when a high initial investment may not be justified in terms of short-term returns,
the small and medium-sized enterprises consider it important to undertake such global investments because of the demonstration effect--to show potential customers
and business partners that they are committed to the local economy. The Mittelstand companies also espouse a strategy
whereby they insist on the same high standards in the host market as they do in the home market,
that makes a strategy of foreign direct investment so central to the German Mittelstand. In order to understand the peculiarities of each host market,
) WK1 16 because it maximises the ability of firms to appropriate economic value accruing from their investments in new knowledge,
and high investments in human capital. -Continual innovation. Both the nature of the products, as well as production and organisation methods, are continually being improved.
Clusters of firms have experienced high levels of investment into process technologies, particularly in manufacturing automation, NC, CAD-CAM,
The Foreign Direct Investment Strategy 62. There is considerable evidence that the transnational economic activities of SMES have been increasing over time.
Not only has the absolute value of foreign direct investment activities by small and medium-sized enterprises increased over time,
but so has their share of the total foreign direct investment, at least in several countries including Italy, The netherlands and Japan. 63.
The effectiveness of a foreign direct investment strategy for enhancing SME competitiveness is shaped by three fundamental sets of factors.
Examples of this new policy approach include measures to encourage R&d investment, venture capital creation, and the rapid establishment of start-up firms.
As for SME specific measures, a great emphasis is placed now on promoting investments in innovation.
so is by increasing the amount of capital available for access to or investment in innovation and new firm creation.
Governments should encourage such a trend by improving the conditions for private capital investments to support SME innovation. 77.
including to ensure the rapid diffusion of expertise in technological rating that would help reduce the uncertainty that limits private sector investments in high risk innovation projects (Box 1). They may also want to consider subsidising programmes that help
R&d grants seem to have substantial additivity to the size of the R&d investments of leading technology users
and provide a greater financial incentive for private investments in R&d. The problem is that technology followers do not under-invest in R&d,
i P Profit margin i C1 Initial investment capital si C1 Self-financed initial capital i C2 Costs for the intake and absorption of new technologies a b A a,
and absorption of new technologies indicated by investments in these technologies and total costs of production.
initial investment costs, self-financed initial capital of investment, and profit margin (a neutral percent figure).
Keasey and Watson 1987), profit margin, turnover, production costs, initial investment figures, and total investment (Altman 1968,1983, Altman et al. 1977,1994, Caves 1998).
Although I utilized these input indicators when constructing the intended model, I integrated them differently than the classical ones.
That also goes for the initial investment which the classical performance models do not include.
I used a ratio between the self-financed initial capital and the initial investment capital.
Thirdly, managers advocate longterm investments that tolerate fluctuation and short-term risks, while shareholders advocate an avoidance of any risk.
because investments in innovation and new projects involve higher short term risks. Fourthly, managers meet competitive threats by increasing their cost-cutting investments to rationalize on the firm's resources and by pushing for innovation in management and operational aspects.
The shareholders tend to think mostly of selling the firm to get the best possible return on invested capital, especially upon the slightest indication of trouble.
early studies assumed that growth in the short run was driven largely by capital investment, while long-term growth was attributed to exogenous technological change 40 (Corley et al. 2002).
Higher productivity of economies was attributed to investment in capital, which is mainly related to knowledge (Schultz 1959).
Lichtenberg's (1992) study of the manufacturing sector's productivity in relation to R&d investments did not consider cross-country effects.
when tangible and intangible investments are considered, there are still cross-country differences in productivity. These differences indicate the effects of the firm's external environment.
Jorgenson and Griliches (1967) focused on issues related to measuring tangible investments in an attempt to reduce the size of the unexplained portion of growth due to exogenous changes.
Later studies attempted to explain the determinants of growth by taking intangible investments, such as R&d, into consideration (Corley et al. 2002.
the initial investment cost and the self-financed initial capital of investment. One does not find these parameters in the classical models,
The ratio of self-financed initial capital of investment to initial investment costs provides a good indication of the degree to
The second subset of parameters includes the initial investment costs and the self-financed initial capital of investment;
The second part of the intended model looks at firm efficiency outside of its investments in innovation activities and its innovation acquirements.
The intake and absorption of new technologies are indicated by the ratio between investment in innovation and technology acquirements and the total costs of production,
The first point is that investments in innovation and technology intake should be treated as positive inputs into the efficiency of the firm rather than as cost figures that exhaust the firm (as they are treated often in the classical approach of finance and accountancy).
The second point is that such investment needs to be related to the production costs to reflect the true utilization of the firm's resources.
A higher ratio is an indication of the firm management's high level of commitment to investment in innovation and absorption of 53 new technologies,
Information about the initial investment in the firm as well as the extent to which the firm was financed self is not hard to find.
Information about the initial investment in the firm and the extent to which the firm was financed self is not hard to find.
Information about the initial investment in the firm as well as the extent to which the firm was financed self is possible to deduct from the firm's accountancy information.
The model was also able to account for the type of financing used to start the firm via the ratio of self-financing to initial investment.
In this paper, the investment in development was not differential (meaning that it was a sum of the inward and outward technology intakes.
turnover, production cost, profit margin, 86 initial total investment, self-financed initial investment, and cost of technology intake.
The model is also able to account for the type of financing used to start the firm via the self-financed proportion of the total initial investment.
For this particular case, the investment in development was not differential. Rather, it was a sum of the two technology intakes (inward and outward.
the intake and absorption of new technologies as indicated by investment and the total costs of production, the initial investment costs, the self-financed initial capital of investment,
Owner-manager conflict and financial theories of investment instability: A critical assessment of Keynes, Tobin, and Minsky.
R&d investment and international productivity differences. NBER Working Paper No. 4161. Likert, R. 1961. New patterns of management.
Investment in humans, technological diffusion, and economic growth. A e. R. Papers and Proc 56 (May), 69 75.
The Investment Analyst: The Journal of the Society of Investment Analysts (83), 23 27.120 Peel, M. J. and Peel, D. A. 1987.
Some further empirical evidence on predicting private company failure. Accounting and Business Research 18 (69), 57 66.
The Investment Analyst: The Journal of the Society of Investment Analysts (75), 3 12. Peel, M. J.,Peel, D. A. and Pope, P. F. 1986.
Predicting corporate failure some results for the UK corporate sector. Omega 14 (1), 5 12.
The philosophy of investment: A post Keynesian perspective. Journal of Post Keynesian Economics 25 (1), 105 121.
Investment in human capital: The role of education and of research. New york, New york: Free Press.
Applying artificial networks to investment analysis. Financial Analysts Journal 48 (5), 78 80 Taylor, F. W. 1911.
and companies face investment choices regarding scarce resources. Innovation is often in competition with other business functions for this investment.
To address this challenge, regional and local authorities can: Implement innovation voucher schemes Implement flexible innovation funding schemes (guarantees, public/private loans, grants) Support regional Venture capital Funds How to address the lack of innovation
despite an overall improvement in overall innovation performance over the last five years (within EU27), performance in the categories‘Firm investments'and‘Innovators'has diminished.
but was managed by the European Investment Fund (EIF) on behalf of the Commission. The GIF's objective was to improve access to finance for the start-up
and growth of SMES and investment in innovation activities, including eco-innovation. According to its Interim Evaluation10 CIP's efficiency improved at both national
/research/innovation-union/index en. cfm The smart specialisation concept promotes efficient, effective and synergetic use of public investments and supports countries and regions in strengthening their innovation capacity,
the programme aims to support SMES'R&d investments by providing funding to help companies clarify their R&d investment needs (€3 500) as well as actual R&d funding (€50 000.
The objective of the mechanism was to stimulate investment in micro-companies in order to improve their products and/or services, facilities, equipment,
The mechanism also aimed to promote investment in developing strategic areas such as quality, new technologies, environment, security and hygiene.
This GP is now part of a national investment programme. Young Innovative Enterprise (YIE) Contract (Champagne-ardenne, France) in the PERIA project:
The practice consists of a synergic set of tools designed to foster investments in innovation in order to:
-Decrease the costs for innovative investments, -Enhance SMES'access to the credit system,-Launch a venture capital fund for start-ups and companies at an early stage.
-System of guarantee for innovative investments-Revolving fund for SMES innovative investment-Venture capital and private equity fund In line with the operating programme strategy, the regional authority has launched tenders to select
o Enhancing R&d intensive investments in the Észak-Alföld region in cooperation with Innova. This GP was used as a model by Veneto Innovazione to establish a regional technology transfer office (Italy.
IDEA as the manager of the initiative, the Capital Investment and Risk management company of Andalusia INVERCARIA,
It focused on both the foreign investment in firms from local clusters leading to cluster upgrading
http://districtplus. it/Cluster internationalisation via foreign investment: Cluster and Foreign Investment Dovetailing (West midlands, United kingdom) in the NICER sub-project (DISTRICT+project):
this GP aimed at increasing foreign direct investment (FDI) within the local cluster firms by embedding the attraction of FDI into the regional development strategy,
achieved by dovetailing the attraction of FDI with the regional cluster policy. The attraction of FDI was aimed to strengthen existing regionally embedded clusters favouring technology anchoring,
and R&d cooperation(§3. 2. 5). Medium Cluster internationalisation DISTRICT+Cluster and Foreign Investment Dovetailing Support for foreign direct investment within cluster firms
with a typical reach of ten beneficiary companies per year for investments of €1 million or higher,
and a return on investment of five years or more. It is important to note that the innovation vouchers are very popular in European Regions,
especially to include investments in innovation management (e g. tools, dedicated staff and training. Today, most national tax incentive schemes encourage strictly R&d investments
and activities and rarely cover aspects of non-technological innovation. Tax incentives target established companies that make profit,
However, this requires a level of investment that is outside the scope of INTERREG IVC projects and is suited better to trans-border
It addressed policies for attracting foreign direct investment into business clusters as well as policies supporting their internationalisation.
The programme aims to support SMES'R&d investments by providing funding to help companies clarify their R&d investment needs (€3 500) as well as actual R&d funding (€50 000.
and customers who share common business or technical goals, at reduced costs and with minimal infrastructural investments.
The objectives of the mechanism were to stimulate investment in micro companies in order to improve their products and/or services, facilities, equipment,
The mechanism also aimed to promote investment in developing strategic areas such as quality, new technologies, environment, security and hygiene.
so it is important to know how the project has been able to draw the line between innovative‘non-technological'measures and simple modernisation or support to investment initiatives.
-Enhancing R&d intensive investments in the Észak-Alföld region in cooperation with Innova. Main conclusions and recommendations:
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