Innovate UK funding boosts productivity in the long-run
A new study has analysed more than 14,000 companies which received Innovate UK funding to examine the long-term productivity effects – and found that these effects do exist, but are only visible over longer time horizons than typically used in evaluations.
The Innovation and Research Caucus – an independent network which is funded by both Innovate UK and ESRC – has built on an earlier study which found that companies in receipt of funding recorded more patents and innovations than comparable peers. The new report, authored by Nick Wilson and Marek Kacer of the University of Leeds and Marc Cowling of Oxford Brookes, extends the observation window to cover 12 years after funding award.
It concludes that Innovate UK funding is indeed associated with higher firm-level total-factor productivity (or TFP) – but only after a “substantial lag”, generally around the sixth year. This is then sustained at “economically meaningful magnitudes” of roughly five to nine per cent.
In the short run, there is no productivity effect – indeed, there may be evidence of a productivity dip, which the authors argue must be seen as part of the investment and scale-up process (where employment and assets rise before value is realised).
This should not be taken as a sign of failure, they conclude, stressing that “evaluation horizons matter,” and that changes to productivity will invariably lag behind changes in patenting, growth and equity finance – for which, as the earlier study showed, improvements can be seen in the first four years.
The new analysis also makes use of a refined productivity measurement which is sectoral rather than economy-wide, allowing for greater recognition of the fact that the relationship between capital, labour and value will differ from sector to sector.
The authors suggest that this approach, as well as allowing for more nuanced analysis, connects the findings to wider debates about industrial strategy, as it demonstrates that Innovation UK funding does not simply benefit productivity in so-called “frontier” technologies – but rather “can raise measured productivity where innovation is embodied in adoption, process improvement and commercial scaling.”