Periodic Reporting for period 2 - FRAME (Framework for the Analysis of Research and Adoption Activities and their Macroeconomic Effects)
Berichtszeitraum: 2018-02-01 bis 2019-03-31
These new models will provide a better understanding of the impact of EU innovation policies on over the short, medium and long term, and thereby achieve three of the specific impacts expected for this Action stipulated in the Call, Research and Innovation Action “CO-CREATION-08-2016/2017: Better integration of evidence on the impact of research and innovation in policy making”. Moreover, the introduction of two dimensions (e.g. the direction of technological change and the link with the labour market dynamics in Europe) goes beyond the call requirements in order to integrate the most relevant frame to draw policy conclusions from the project.
• Work Package 2 introduces a multi-sector setting in which innovation and technology adoption is sector-specific. Subsidies to one sector have asymmetric eects over the other sectors. However, the existence of positive spillovers across sectors make the effect of subsidies persistent in the long-run which depends on the labour market characteristics. The effect of subsidies for technology adoption is symmetrical across sectors and depends on the elasticities of the technology to investment too.
The extension developed and explaining the structural innovative change occurring from manufacturing to services will be presented to numerous conferences, such as the NBER Summer Institute (July 2019).
• Work package 3 shows that educational policies interact signicantly with our features of endogenous growth: an increase to education subsidies increases investment in human capital. There is thereby more effective labor available to work at the same wage. Innovation policies interact with human capital by distorting the labor markets and the return to education. In our baseline calibration, public investment in adoption has a negative impact in the short run. The latter is the result of stimulating wages in the medium-run and, due to income effects the supply of labor falls, inducing a recession.
• Work Package 4 aims at understanding how technology adoption is influenced by fiscal policy. Work package 4 shows that innovation adoption suffers from austerity policies which slow down the former. The multi-country framework stresses that this detrimental effect are also transmitted to economies connected to the countries applying austerity measures. These findings complement what is find in Work Package 5 (see below) and were disseminated with a VoxColumn combined with the second policy brief. Moreover, key findings were presented during internal events (1st FRAME workshop and FRAME final conference). Submissions to international conferences are also planned for the next upcoming months.
• The contribution of Work Package 5 is twofold: first, it introduces new methods to estimate TFP measures for European countries and adjusting for utilization in input factors. The latter shows the limitations of existing methodologies which do not fit the European labour markets characteristics. Second, Work Package 5 provides an explanation of the heterogeneity of European countries to recover from the Great recession. Discount factors vis-a-vis productivity shocks represent a promising source of variation to explain fluctuations in unemployment. The key findings of WP5 were presented in internal FRAME events but also external ones (CoDE conference in May 2018 but also European Central Bank, May 2019 for example). Numerous presentations are planned over the next upcoming semesters in international conferences.
• WP6 focuses on estimating key elasticities parameters for innovation and adoption. Besides, WP6 develops a microeconomic study of public applied research in easing the adoption of technologies within firms. Easing the adoption of technologieswith applied public research leads to long-lasting effect on firm’s innovation and performances. The key findings were disseminated within a VoxColumn. Moreover, the related policy conclusions from this Work Package have been combined with the macro-conclusions from Work Package 1 in the first FRAME policy brief. The key conclusions were discussed within the Lunch Debate organized in Brussels in October 2018 and widely diffused within internal and external FRAME events.
WP 2 goes beyond the DoA by proposing 2 distinct frameworks to study the impact of innovation in a multi-sector setting . WP4 is currently going further than the expected tasks by focusing on Spain to test the model developed. Its related spillover effects toward countries with more solid fiscal fundamentals, such as Germany, is also an unexpected contribution of the project. Finally, WP5 develops novel TFP methods fitting the characteristics of European countries is an important contribution to the literature and practitioners. This method will have an impact on the ongoing practices in ministries, and research international organizations who conduct forecast studies of productivity. Comparative analysis with the USA will be also possible with more accurate measures for each context.