Innovation policy; Europe or the member states?

Innovation seldom has purely domestic causes and consequences, but how can a European innovation policy complement or substitute national policies? Taking the subsidiarity principle as a starting point, this report discusses the economic rationale of a European innovation policy. Explorative empirical analysis suggests that public R&D and public funding of private R&D are subject to economies of scale and external effects. This is an argument in favour of a European innovation policy but amongst other things, the heterogeneity in social economic objectives on public R&D spending between Member States pleas for national government involvement. In addition, there are scale economies in the protection of intellectual property and in the development of standards. We conclude that a European innovation policy could have, or already has, substantial benefits over purely national policy in these areas. With respect to innovation policies targeted at SMEs, we do not find economies of scale or external effects. It seems to be efficient that these policies are mainly conducted at the national level.