The European Union’s Research and Innovation funding shows only a small effect on financial firm-level outcomes in the case of most industries.
The European Commission published a working paper on the causal impact of the Horizon 2020 Framework Programme on financial firm-level outcomes. Horizon 2020 was the EU’s flagship research and innovation programme for the period 2014-2020. One of the key instruments that companies could apply for under Horizon 2020 was the SME instrument, specifically designed for small and medium-sized enterprises (SMEs) to develop and bring to market innovative products, services, and processes. Further, the joint programme Eurostars which was co-funded by Horizon 2020, provided funding for international collaborative projects led by research-performing SMEs. The fast track to innovation (FTI) presented another funding instrument for companies, as it aimed at accelerating the market uptake of ground-breaking innovations.
Market failure due to positive externalities of research and innovation and the right allocation of resources to tackle societal challenges are two of the dominating arguments for public funding in research and innovation. The report investigates whether the EU research and innovation investments have fulfilled their intended objectives to contribute to scientific advancements, technological breakthroughs, economic growth, and societal well-being. Since labour and assets are two of the main components of production, the publication focuses on financial firm-level outcomes as variables. Further, understanding the socio-economic impact of Horizon 2020 can give important guidance for policymaking in funding allocations.
To investigate the causal impact of Horizon 2020 on financial firm-level outcomes, the paper focuses on the variables of employment, assets, and revenue. The causal impact of the Framework Programme on companies in general is explored and in addition, the impact of the funding is being differentiated by sector. The paper conducts a systematic analysis of what would have happened in the absence of EU Research and Innovation funding to be able to filter out the contribution of the programme. The administrative and financial data of around forty thousand privately owned companies that applied for Horizon 2020 funding were assessed. This sample was restricted to applicants with proposals of high quality to ensure comparability. The method used in this publication is a counterfactual evaluation, making sure also to consider external trends and pre-existing differences between the companies.
The working paper ultimately finds that on average receiving grants from Horizon 2020 results in a subsequent rise of around 20% in companies’ employment levels, coupled with approximately 30% growth in their overall assets and revenues in the years following the acquisition of their initial grant.
A significant impact is predominantly observed in companies operating in the ‘information and communication’ (NACE J) and ‘professional, scientific, and technical activities’ (NACE M) sectors. Concretely, the causal impact of receiving a Horizon 2020 grant for a firm working in the ‘professional, scientific, and technical activities’ sector is much larger than for any other sector, with an average increase of firm employment by about 30%. Their total assets and revenues increase by about 40% compared to non-funded firms. These effects are still present after 2.5 years, which is the average duration of a project in the sample used. The causal effects of Horizon 2020 funding on firms in the ‘information and communication’ sector are limited to the total assets. Compared to non-funded companies, the total assets increase by about 40% on average. Employment and revenues seem unaffected by the funding.
Although Horizon 2020 attracts applicants from all economic activities, only some are positively impacted by receiving grants. EU funding seems to be ineffective in boosting the financial variables in question for the observed companies in most other sectors, such as agriculture, forestry and fishing, manufacturing, construction, transportation and storage, and education, among others. These findings call for further analysis to investigate sectoral effects and redesign the programme to improve the effectiveness of EU research and innovation funding.
The findings of the working paper must be put into perspective since there are also other variables apart from financial firm-level ones that could be appropriate to measure the success of Horizon 2020 – for instance, taking patents or publications into account for a cross-sector analysis.
Under Horizon 2020, the European Union’s flagship research and innovation programme for the period 2014-2020, Switzerland had the status of an associated country, meaning Swiss researchers, institutions, and businesses could participate in most parts of Horizon 2020 on an equal footing with EU Member States’ entities. The publication of the final version of the Horizon 2020 evaluation is foreseen until the end of this year and should provide further insights into the impact of the previous R&I Framework Programme.