Plan for Jobs 2013 Forfás, DJEI February 2013 A Review of the Equity Investment Landscape In Ireland Forfás January 2013 Regional Labour markets Bulletin 2012 EGFSN
The primary proximate cause is simply the lack of investment in ICT capital: European countries have lagged significantly behind the United states in ICT investment, both as percent of total investment and as a percent of GDP,
since the 1990s. And this is true not just of the ICT-producing sector itself. ICT-using sectors, primarily the service sector,
and land markets limits possible business models, raises the cost of ICT investment, and slows down market forces that can push firms to adopt more productive practices.
Corporate tax policies may play a role as well as depreciation rates for ICT capital investments are generally less generous than in the United states. A third reason is limited the ability of European businesses to reach more efficient economies of scale.
which in turn makes it harder to achieve economies of scale from ICT investments. Moreover, Europe's much higher proportion of small firms makes it hard for firms to surmount the high fixed costs of many PAGE 3 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014 ICT investments.
In the latter case regulation has provided the significant bottleneck to firm growth, by favoring small firms at the expense of large ones.
Research has shown that getting the full potential from ICT investments requires organizational redesign, and that U s. firms are better at employing management techniques that can facilitate such transformation.
Third, Europe can actively assist in the digital transformation of industries by creating the right conditions for ICT investment and adoption.
Fourth, tax and trade policy provide important levers that Europe can use to promote ICT investment.
By minimizing taxes on ICT investments policymakers encourage the productivity effects of ICT use. These tax incentives are particularly important
because while ICT investment provides large benefits for the broader economy, the nature of these benefits makes them hard for any single firm to capture;
Additionally, the Transatlantic Trade and Investment Partnership (TTIP) would better facilitate access to U s. markets.
In the United states, 48 percent of non-structures capital investment is in ICT, and the number would be even higher
greater investment in ICT is associated with greater productivity growth. 36 In fact, nearly all scholarly studies
Studies in the early 2000s found that investment in ICT capital increased productivity by three to eight times more than investment in non-ICT capital. 43 Likewise,
and Tambe find that the spillovers from IT nearly double the impact of IT investments. 45 Rincon, Vecchi,
and expanded employment over the past year. 61 Castiglione measures the impact of ICT investments in Italian manufacturing firms
and are the primary drivers 00.511.522. 53eu-15 totaleconomyeu-15marketsectorusa totaleconomyusa marketsectorother (residual) TFP (ICT-use) TFP (ICT-production) IT investment/hour PAGE 14
that ICT investment is associated strongly with productivity. 64 In Spain, Romero and Rodríguez find that e-buying had significant impacts on firm performance over the 2000-2005 period. 65 Ruiz-Mercader, Meroño-Cerdan,
and 62 percent for ICT firms. 69 Belgian firms that used technology from foreign sources were found to have significantly higher productivity growth. 70 These studies confirm that ICT investment goes hand in hand with firm productivity growth,
and thus European productivity growth would have been even slower without investment in ICT. Moreover, ICT doesn't just increase firm productivity,
and find that ICT investment, broadband use, and e-commerce are all very important for innovation in the service sector,
and that ICT investment and broadband use are less but still important drivers of innovation in manufacturing as well. 75 ICT doesn't just increase firm productivity,
PAGE 16 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION JUNE 2014 Amount of ICT Investment firms in Europe do not invest as much in ICT as firms in the United states. Higher levels of ICT investment drive higher
in a recent survey of both micro and macro literature, Cardona et al. note that firm-level analyses provide solid evidence that over the last two decades an increase of ICT investment by 10%translated into higher output
growth of 0. 5 0. 6%regardless of the country studied. 82 Businesses in the United states have maintained a healthy lead in both ICT investment as a share of overall investment
and ICT investment as a share of GDP. 83 (Figures 8 and 9) And that lead has grown, not shrunk, since 2000:
the EU invested about 80 percent as much as the United states in ICT as a share of total capital investment in 2000,
and across individual countries confirm the U s. lead in ICT investment. ICT investment both as a percentage of GDP and as a percentage of total nonresidential investment peaked in the late 1990s for both the United states and the European union.
However, the United states has maintained much higher levels of investment in ICT as a share of fixed capital investment since the 1990s.86 (Figure 10) Moreover,
U s. ICT investment is significantly higher as a percentage of overall investment than in any other large European nation other than the UK. 87 Continuously higher levels of ICT investment by the United states mean that it has built up a larger stock
of ICT capital goods, even though these goods normally depreciate faster than other capital goods. From 1991 to 2007,
ICT capital stock the total accumulated ICT investment tripled in Germany, Italy, and Spain, reaching 6 percent of total capital stock.
however, it quintupled to 14 percent. 88 0%1%2%3%4%5%6%United Stateseuconsumerbusiness Over the last two decades an increase of ICT investment by 10 percent translated into higher
Gross fixed capital formation (investments) by type as a percentage of GDP (EUR-W is weighted average of major European countries) 89 Figure 10:
Shares of ICT investment as percent of nonresidential investment93 Economists see U s. ICT investment as a key reason the United states has maintained its place at the technological frontier as one of the most productive countries. 94 The effectiveness
of greater ICT capital investment in the United states suggests that additional ICT investment in Europe is likely to have significant benefits as well.
1991 to 2007, ICT capital stock the total accumulated ICT investment tripled in Germany, Italy, and Spain,
ICT assets as percentage gross fixed capital formation, 201196 ICT investment shows up in survey data on ICT use as well.
averaged over 2013 and 2014) 98 Limited Impacts in the Services Sector Drilling down into the lack of investment,
lowering its impact by 16 percent for each dollar invested. 105 The fact that companies in Europe can get less bang for their buck from their ICT investment means not only that productivity is lower,
but also that fewer projects meet investment hurdles and firms in Europe end up investing less than firms in the United states. One product market regulation that appears to have a negative effect on ICT-enabled productivity is privacy regulation.
or 16 percent to 40 percent of IT budgets. 109 Other examples of costly regulations that limit the effectiveness of IT investment include the new law requiring websites to obtain explicit consent before placing web cookies,
Labor market regulations have a large negative impact on ICT investment and the benefits firms can obtain from it.
such rules reduce the return on investment from ICT purchases, leading firms in Europe to invest less than firms in the United states. Given that so much of the ICT system is moving to the cloud,
and Taxes Companies make decisions about capital investment on the basis of return on investment.
including investment. However higher taxes on ICT consumption do discourage ICT use by consumers, making it more difficult for businesses to use ICT to adopt customer-facing productivity increases.
Europe's high consumption taxes may only affect business investment decisions indirectly, but corporate tax policies play a more direct role.
Another important channel through which tax policies influence investment is depreciation rates the rates at which corporations can write off capital investments for tax purposes. 126 Accelerated depreciation decreases tax revenues in the United states by 6. 6 percent,
and thus comprises a substantial incentive to invest in new equipment, including ICT equipment. 127 However,
which companies can depreciate ICT investments. 129 Over time, these rate differences could have significant effects on ICT investment and thus accumulated ICT capital stock.
Unfortunately this is not a well-developed body of research and further work is necessary to determine
whether ICT capital depreciation rates have a significant effect on investment. Scale Economies Two additional reasons European firms lag in their investment in ICT capital are related to scale.
The first scale problem is with firm size. The United states has a higher percentage of workers employed by large firms than all European countries.
ICT investments have high returns to scale because of their low marginal costs but higher fixed costs. 130 To be sure,
2010131 Regulation that favors small firms has been a significant bottleneck for ICT investment in many European nations. 133 The firm-size problem ties into the regulatory issues above,
there are larger potential returns to ICT investments for U s. firms, again because of the high fixed costs relative to marginal costs in many ICT capital investments.
While regulations and taxes affect the return on ICT investments, in any given environment firms still have investment choices.
These choices are in part dependent on management practices which vary not only between firms but between nations.
and reduces ICT investment by firms and other organizations. As noted above, this is already a key problem in most European nations,
which has less investment in ICT than does the United states. There is compelling evidence that tariffs ON IT products will result in less ICT use in Europe.
For example, a study of tariffs ON IT products in India found that they reduced domestic IT investment. 162 In a cross-national study of countries in the Asia-Pacific region,
Economists have documented also significant market failures around IT investment, including network externalities and chicken-or-egg issues that slow digital transformation absent smart and supportive public policies. 165 Health care is a leading example.
procurement and regulation. 166 Use Tax and Trade policy to Spur ICT Investment It is only through investment in ICT that ICT innovation is diffused throughout the economy.
For this reason, public policies should focus on spurring additional investment by organizations in the latest-generation ICT.
if not eliminate, taxes on ICT investments, including broadband telecommunications, Internet usage, and data. They should allow companies to more rapidly depreciate ICT investments for tax purposes,
including allowing firms to expense them in the first year. Some economists might question such policies,
arguing that such tax incentives should only go to investments in areas like R&d where companies seldom capture all the benefits.
the socially optimal amount of investment will lag behind actual investment. As such, it makes sense for the tax code to spur additional ICT investment,
or at least to avoid having the tax code penalize ICT investment. At the same time, the EU should continue to embrace the ITA agreement
in order to ensure low prices for European ICT users. The ITA has played a critical role in the spread of ICT products,
investment in ICT goods would decline, and productivity growth would slow. 169 Create Larger Markets for EU Firms ICTS benefit from economies of scale.
This means the larger the market, the easier it can be for an organization to recoup its ICT investments.
Finally, the Transatlantic Trade and Investment Partnership (TTIP) would significantly expand markets for many European firms by reducing non-tariff barriers in the United states
A recent report from Sweden estimates that European exports to the United states could increase by 20 percent to 40 percent under the TTIP. 172 These larger markets would increase the return on investment on more ICT projects for firms in the EU. Reduce Preferences for Small
But the European economic crisis has kept Euro-area investment on the decline while preoccupying policymakers with other issues.
better management, higher levels of ICT investment (particularly in ICT-using sectors), lower taxes on ICT products,
Saving and Investment, Table 5. 3. 5; accessed March 3, 2014), http://www. bea. gov/histdata/NIYEARAPFFILES. asp?
Robert K. Plice and Kenneth L. Kraemer, Measuring Payoffs from Information-technology Investments: New Evidence from Sector-Level Data on Developed and Developing Countries (working paper, Center for Research on Information technology and Organizations, 2001;
Lorin M. Hitt and Prasanna Tambe, Measuring Spillovers from Information technology Investments (proceedings of the 27th International Conference on Information systems, Milwaukee, WI, 2006), 1793.46.
Tony Clayton, IT Investment, ICT Use and UK Firm Productivity, Economic Trends 625 (December 2005;
Concetta Castiglione, Technical Efficiency and ICT Investment in Italian Manufacturing Firms, Applied Economics 44, no. 14 (2012), http://www. tara. tcd. ie/bitstream/2262
and Jacques Mairesse, Evidence on the Impact of R&d and ICT Investments on Innovation and Productivity in Italian Firms, Economics of Innovation and New Technology 22, no.
OECD, Country Statistical Profile 2012 (Investment Data and Shares of ICT Investment in Total Nonresidential GFCF;
Investment in ICT: Shares of ICT investment in nonresidential gross fixed capital formation; accessed April 2, 2014) http://www. oecd-ilibrary. org/economics/oecd-factbook-2013 factbook-2013-en;
World bank, Databank: World Development Indicators (Gross Fixed Capital Formation as percentage of GDP; The Conference Board, Total Economy Database:
and the United kingdom. OECD Statextracts, Country Statistical Profiles 2012 (shares of ICT investment in nonresidential gross fixed capital formation;
and Marco Vivarelli, Productivity Gains from R&d Investment: Are High-tech Sectors Still Ahead?(discussion paper, Institute for the Study of Labor, 2011), http://ideas. repec. org/p/iza/izadps/dp5975. html. See also:
Figure 2. 1. 3 ICT investment by asset, 2000 and 2011; accessed January 28, 2014), http://dx. doi. org/10.1787/888932890599.97.
Robert M. Dammon and Lemma W. Senbet, The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage, The Journal of Finance 43, no.
and Xiaoge Zhou, Investment in Enterprise resource planning: Business Impact and Productivity Measures, J. of Management Information systems 19, no. 1 (2002): 71 98.131.
Kenneth L. Kraemer and Jason Dedrick, Payoffs From Investment in Information technology: Lessons from the Asia-Pacific Region (University of California, Irvine:
Bradford Delong and Lawrence Summers, Equipment Investment and Economic growth: How Strong is the Nexus? Brookings Papers on Economic activity 23 (1992;
Jonathan Temple and Hans-Joachim Voth, Human capital, equipment investment, and industrialization, European Economic Review 42, no. 7 (1998): 1343 62;
Hitt and Tambe, Measuring Spillovers from Information technology Investments, 1793; Xavier Sala-i-Martin, 15 Years of New Growth Economics:
An Analysis of Progress Made and Remaining Obstacles in the Member States (report from the Commission to the European parliament, the Council, the European central bank, the European Economic and Social Committee, the Committee of Regions and the European Investment Bank
Firm investments, Linkages & entrepreneurship and Intellectual assets. Outputs cover the effects of firms'innovation activities in 2 innovation dimensions:
Sweden, Germany, Finland and Slovenia reach highest ranks as regards Firm investments; Denmark, United kingdom, Belgium and Sweden are top performers in Linkages and entrepreneurship;
EU Member States'innovation performance 6 Innovation Union Scoreboard 2014 negative growth was observed in business innovation investments and financial support to innovation.
Firm investments and Finance and support. In particular, the positive growth of public R&d expenditures (1. 8%)was offset by a continuous decline in venture capital investments(-2. 8%).In addition,
a positive improvement in Business R&d expenditure (2. 0%)was negatively offset by firms'Non-R&d innovation expenditures(-4. 7%).At a wider European level,
and measures the availability of finance for innovation projects by venture capital investments and the support of governments for research and innovation activities by R&d expenditures by universities and government research organisations.
‘Firm investments'includes 2 indicators of both R&d and Non-R&d investments that firms make
in order to generate innovations.‘‘Linkages & entrepreneurship'includes 3 indicators measuring innovation capabilities by looking at SMES that innovate in-house
For Venture capital investment data is available for 20 Member States. Changes to the IUS 2013 Although the general methodology of the IUS 2014 remained unchanged there have been three modifications as compared to the IUS 2013.
2011 Finance and support 1. 3. 1 R&d expenditure in the public sector as%of GDP Eurostat Eurostat 2005 2012 1. 3. 2 Venture capital investment as%of GDP
Eurostat Eurostat 2007 2012 FIRM ACTIVITIES Firm investments 2. 1. 1 R&d expenditure in the business sector as%of GDP Eurostat Eurostat 2005 2012 2
and support Medium (3. 77%)-Firm investments Low (2. 41%)-Linkages & entrepreneurship High (5. 59%)-Intellectual assets High (4. 82%)-Innovators High (4. 77%)-Economic effects Low (2. 19%)-Table 2:
Estonia's strong performance has to be interpreted with care as the score for this dimension is based on one indicator only (R&d expenditures in the public sector) as data on venture capital investments are not available.
Firm investments (Firm Activities) In the dimension Firm investments the Innovation leaders and followers are performing the best (Figure 8). Germany
both for science-based R&d activities and non-R&d innovation activities including investments in advanced equipment and machinery.
Member States'performance in Firm investments 16 Innovation Union Scoreboard 2014 Linkages & entrepreneurship (Firm Activities) In the dimension Linkages & entrepreneurship the Innovation leaders and followers
For Finance and support(-0. 5%)and Firm investments(-1. 4%)growth has even been negative,
in particular due to a strong decline in Venture capital investments(-2. 8%)and Non-R&d innovation expenditures(-4. 7%).3. 2 EU growth performance For the EU innovation
Canada, South africa Finance and support 1. 3. 1 R&d expenditure in the public sector as%of GDP OECD, Eurostat OECD, Eurostat 2011 FIRM ACTIVITIES Firm investments
Performance has worsened in Non-R&d innovation expenditures and to a lesser extent also in Venture capital investments, SMES with marketing and/or organisational innovations and Fast-growing innovative firms.
Bulgaria has performed below the average of the EU. The weakest indicators are Venture capital investments and Non-EU doctorate students.
Strong declines in growth performance are observed in Venture capital investment and Non-R&d innovation expenditures. Note:
Non-R&d innovation expenditures and R&d expenditures in the public sector. Relative weaknesses are in Non-EU doctorate students and in Venture capital investments.
A strong decline is observed in Venture capital investment and Non-R&d innovation expenditures. Note: Performance relative to the EU where the EU=100.46 Innovation Union Scoreboard 2014 Denmark is an Innovation leader.
Relative weaknesses are in Non-EU doctorates students, Venture capital investments and License and patent revenues from abroad.
Most notable growth declines are observed in Non-R&d innovation expenditures Venture capital investments and Sales share of new innovations.
No data for Venture capital investments. Innovation Union Scoreboard 2014 49 Ireland is an Innovation follower.
Community designs, Venture capital investments and R&d expenditures in the business sector. Greece performs above the EU average on International scientific copublications, Sales share of new innovations and SMES with Marketing and/or Organisational innovations.
Growth has declined in Non-R&d innovation expenditures and Venture capital investments. Note: Performance relative to the EU where the EU=100.
The largest growth decline is observed for Venture capital investment. Other notable declines are in SMES innovating in-house and in Community designs.
No data for Venture capital investments. 54 Innovation Union Scoreboard 2014 Italy is a Moderate innovator.
Growth declines are observed in Venture capital investments, Non-R&d innovation expenditures, Community designs and Employment in knowledgeintensive activities.
No data for Venture capital investments. 56 Innovation Union Scoreboard 2014 Latvia is a Modest innovator.
No data for Venture capital investments. Innovation Union Scoreboard 2014 57 Lithuania is a Moderate innovator.
No data for Venture capital investments. 58 Innovation Union Scoreboard 2014 Luxembourg is an Innovation follower.
Relative strengths are in International scientific copublications, community trademarks, Venture capital investments and in Community designs.
No data for Venture capital investments. Innovation Union Scoreboard 2014 61 The netherlands is an Innovation follower.
Relative weaknesses are in Non-EU doctorate students and Venture capital investments. Strong increases in growth are observed for Community trademarks
Large declines in growth are observed in Non-R&d innovation expenditures, New doctorate graduates and Venture capital investments.
Strong declines are observed Non-R&d innovation expenditures, R&d expenditures in the business sector, Non-EU doctorate students and Venture capital investments.
No data for Venture capital investments. Innovation Union Scoreboard 2014 67 Slovakia is a Moderate innovator.
No data for Venture capital investments. 68 Innovation Union Scoreboard 2014 Finland is an Innovation leader
but slightly declined in 2013, in particular due to declining venture capital investments. The performance relative to the EU has been declining over the whole period from 148%in 2006 to 135%in 2013.
Strong declines in growth are observed for Venture capital investments and Sales share of new innovations. Notes:
No data for Venture capital investments, Non-R&d innovation expenditures and SMES innovating in-house. 10 Over the whole 2006-2013 period Community trademarks grew strongly as shown in the graph showing the growth rates per indicator.
Large growth declines are observed in Community designs and Venture capital investments. Notes: Performance relative to the EU where the EU=100.
No data for Venture capital investments, PCT patent applications in societal challenges and Employment in fast-growing firms of innovative sectors.
No data for International scientific co-publications, Most cited scientific publications, Venture capital investments, PCT patent applications,
No data for Venture capital investments. Innovation Union Scoreboard 2014 77 6. Innovation Union Scoreboard methodology Step 1:
Venture capital investments, Publicprivate co-publications, PCT patent applications, PCT patent applications in societal challenges and License and patent revenues from abroad.
, 34 0, 51 0, 66 0, 49 0, 43 1. 3. 2 Venture capital investments 0, 277 0, 307 0, 038
FIRM ACTIVITIES Firm investments 2. 1. 1 R&d expenditure in the business sector 1, 31 1, 52 0, 39 1, 01 1, 96
1. 3. 2 Venture capital investments 0, 277 0, 300 0, 134 0, 234 0, 213 0, 137 0, 310 0
289 FIRM ACTIVITIES Firm investments 2. 1. 1 R&d expenditure in the business sector 1, 31 0, 50 1, 22 1, 95 0
, 4%12,9%-2, 1%1. 3. 2 Venture capital investments-2, 8%-1, 1%-17,5%-12,0%-1, 3%-1, 6%-1
, 3%-10,6%-7, 1%-0, 4%-5, 5%0, 0%4, 3%FIRM ACTIVITIES Firm investments 2. 1. 1 R&d
7%-0, 5%3, 3%-0, 4%0, 6%2, 6%10,9%-0, 7%1. 3. 2 Venture capital investments-2
, 9%FIRM ACTIVITIES Firm investments 2. 1. 1 R&d expenditure in the business sector 2, 0%4, 4%1, 0%1, 8%9
Eurostat Eurostat 1. 3. 2 Venture capital(%of GDP) Venture capital investment is defined as private equity being raised for investment in companies.
such as investment in equipment and machinery and the acquisition of patents and licenses, measure the diffusion of new production technology and ideas.
AND SUPPORT FIRM INVESTMENTS LINKAGES & ENTREPRENEURSHIP INTELLECTUAL ASSETS INNOVATORS ECONOMIC EFFECTS EU 0, 583 0, 539 0, 558 0, 417 0, 550
The Firm investments dimension includes 2 indicators of both R&d and non-R&d investments that firms make
in order to generate innovations. The Linkages & entrepreneurship dimension includes 3 indicators and measures entrepreneurial efforts and collaboration efforts among innovating firms
ACTIVITIES Firm investments Firm investments 2. 1. 1 Business R&d expenditures as%of GDP 2. 1. 1 Business R&d expenditures as%of GDP Identical
Venture capital investment is defined as private equity being raised for investment in companies. Management buyouts, management buyins,
Data are broken down into two investment stages: Early stage (seed+start-up) and Expansion and replacement (expansion and replacement capital.
Replacement capital is defined as purchase of existing shares in a company from another private equity investment organisation
Several of the components of innovation expenditure, such as investment in equipment and machinery and the acquisition of patents and licenses, measure the diffusion of new production technology and ideas.
Several of the components of innovation expenditure, such as investment in equipment and machinery and the acquisition of patents and licenses, measure the diffusion of new production technology and ideas.
HR 40 Correlation with the indicator on business R&d expenditure Indicators 2. 1. 1 and 2. 1. 2 both measure investment in innovation activities:
and so have been rapidly increasing investment in the new technologies. 1-3 The rhetoric of vendors
Stable investments are required that allow organisation-wide, flexible systems to be implemented in a relatively short time,
Johanna I Westbrook and Jeffrey Braithwaite ABSTRACT Investment in information and communication technology (ICT) in the health sector can bring important benefits.
What locations are attracting new investments in ICT R&d or manufacturing? What is the position of individual locations in the global network of ICT activity?
and not only a destination of R&d investment from other countries. Figure 1: The global network R&d a) Nodes weighted by the number a country's overseas R&d centres b) Nodes weighted by the number hosted R&d centres Source:
but also as a source of foreign R&d investments. Regarding the level of out-degree, the number of linkages with other countries,
which might attract R&d-related investments. On the other hand from the perspective of an R&d owning country,
that the relevant coefficients show strong and positive impact on foreign R&d investments. A straightforward interpretation is that the readiness of inventors to collaborate with their international colleagues is associated positively with the number of both offshore R&d centres of country
Foreign and Domestic R&d Investment. Kunitachi, Tokyo: Institute of Economic Research, Hitotsubashi University. Bonacich, P.,Oliver, A. & Snijders, T. A b. 1998.'
'The Drivers of Foreign Direct Investment into Research and development: An Empirical Investigation.''Journal of International Business studies, 30:1, 1-24.
'World Investment Report 2005. Transnational Corporations and Internationalization of R&d.''New york and Geneva: United nations. Watts, D. J. & Strogatz, S. H. 1998.'
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