R&D expenditures in Europe and the US

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“Europe would over time widen rather than narrow its distance [in research and development] behind the US” should the current status quo remain, writes Kristian Uppenberg, a senior economist at the European Investment Bank, in a February paper published by the Centre for European Policy Studies (CEPS).

The European Union wants to raise the level of research and development (R&D) investment by the business sector as quickly as possible, states Uppenberg, in order to reach the Lisbon Strategy’s target of increasing EU R&D spending to 3% of GDP by 2010.

The study aims to shed light on Europe’s relatively low level of R&D spending compared to the US and Japan.

“There is notable diversity in R&D spending across sectors, firm sizes and geographical entities in Europe. But such diversity also exists in the US,” states Uppenberg.

Indeed, according to his analysis, there are many areas in which the EU does not differ from or lag behind the US. “In large segments of the manufacturing industry, for example, European firms spend as such on R&D as US firms do,” he writes.

The biggest gaps in R&D spending between the two giants are in market services and high-technology manufacturing. But, as economies develop, “market services tend to grow in size relative to the manufacturing industry,” underlines Uppenberg.

Business R&D tends to be concentrated in economic clusters as a direct consequence of the geographical concentration of economic activity in general, he explains. Thus, both the US and Europe’s future comparative advantage is unlikely to be in medium-technology manufacturing.

If the innovative and productivity shortfalls in market services and high-technology sectors were to remain, then Europe would narrow its distance behind the US, the paper concludes. 

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