Impacts of government incentives towards industrial innovation: An analysis of the federal programme funding R&D personnel in the Federal Republic of Germany

Abstract

Against a background of deteriorating national and international economic conditions, increasing importance is being attached by political administrations to the innovative capacities of small and medium-sized firms with respect to the employment situation and to international competitiveness. Consequently, government support of research, development and innovation in these companies has taken a marked upward turn since the late seventies, both in the Federal Republic of Germany and in other industrialized Western countries. The actual impacts of some of these programmes are at present under study by the Fraunhofer-Institut für Systemtechnik und Innovationsforschung (ISI). This paper is an outline of the results of a study of the largest current programme funding R&D and innovation in small and medium-sized firms by offering grants towards the costs of R&D personnel. The impact analysis is being conducted in two rounds: the first round of studies, which is the subject of this report, took place in 1980/1981 and was designed to examine the discernible short-term effects and characteristics of the programme. The second round is planned for 1983/1984 as a summary of the impacts of the programme over the first five years of its term of effect. The subjects of investigation are the quantitative and qualitative changes in R&D activities caused by the programme in the firms under study and the contribution the programme can make to strengthen innovative and competitive capabilities. The conditions underlying the programme are reviewed critically, especially in order to see whether the barriers to innovation and the weak spots assumed did in fact exist in the firms examined. The administrative management, “free rider”-effects, and factors restricting impacts are investigated along with such questions as whether firms located in peripheral regions were reached by the programme to the same extent as firms in conurbation areas. Furthermore, the reasons for non-participation of firms are analyzed. The example of the federal programme funding R&D personnel thus is used in this impact analysis in an attempt to provide empirical data on the significance, the range, and the limits of such a government instrument promoting R&D and innovation in small and medium-sized firms.