Impact of the funding structure on R&D in cases of European Union and Russian Federation

Abstract

Research background: Many contemporary empirical studies and theories of economic growth have revealed the dependence of innovative development of countries on the adequacy of funding for innovation. However, much of the empirical literature has discussed the issue of innovativeness without assessing the impact of the structure of funding sources on the success of the innovation process. Purpose of the article: The aim of this paper is to prove the hypothesis of the inefficiency of innovative systems in which the proportion of public investment is high compared to private investment. In Russia, the share of public R&D funding is 67%, and the EU average is 33%. Methods: Based on the empirical research, we have compared the EU Horizon 2020 program with Russian VEB Ventures programs, conversion and digitalization programs of the Industrial Development Fund and found out how the structure of funding sources for these programs affects the success of their implementation. Findings & Value added: The results of our research show that a large share of public funding is not the cause, but the result of low private innovation activity and a lack of private investment. Significant reasons for their shortage were identified: the economic feasibility of purchasing ready-made solutions on the global market instead of funding research; cheap labour; adverse business climate. Thus, a high share of public financing of innovations in a country can serve as an indicator of the existence of serious reasons for restraining innovative development.