The Role of Public Support for Innovativeness in SMEs Across European Countries and Sectors of Economic Activity

Abstract

The paper investigates the impact of public support for innovation activities on adoption of different innovation strategies and propensities to introduce product, process, organizational and marketing innovations in European small and medium enterprises. In estimating these effects, country and sectoral heterogeneities are taken into account. Effectiveness of alternative policy mixes is also evaluated. The analysis is based on a multivariate, multi-stage econometric model and data from the Community Innovation Survey 2014. It is found that innovation support is utilized differently by newer and older members of the European Union, with the former investing mainly in acquisition of machinery, equipment, software, buildings, knowledge and trainings and the latter directing aid, to a larger extent, to research and development and introduction of innovations. The results also indicate various effectiveness of support from alternative institutional sources. Aid from the EU is more beneficial for manufacturing, while national and local support is more effective in older EU countries than newer members of the European Union and services sector. Using various but not all types of policy mixes is estimated to increase the chances of innovating. It is concluded that innovation support might not be optimally used in newer members of the EU and that better coordination of aid from the EU and national institutions could lead to improved economic results.