68741
Lithuania’s Research, Development and Innovation System - Benchmarking & Effectiveness Analysis
The World Bank[1]
May 2009
Table of contents
Executive summary: 2
1. Introduction 5
2. Research, Development and innovation (RDI) system in Lithuania – some basic facts and financing arrangements ..7
3. how Lithuania’s current RDI effort compares to THAT of other EU member countries on inputs and outputs? .9
4. Effectiveness of the Lithuania’s public and private spending on RDI – how well is Lithuania doing compared to other EU member countries? ..20
5. key Challenges faced by the RDI system in Lithuania ..24
6. Conclusions ..25
Annex ..27
Executive summary:
The objective of this report is to benchmark Lithuania’s progress and the current position in the Research, Development and Innovation (RDI) sector against that of other EU member countries. The findings of the report are based on the quantitative analysis, and are presented in a format of a policy brief. Most of the RDI indicators presented here are readily available and widely used, which makes it easy to replicate the analysis at some point in a future. At the same time, the analysis uses some econometric modeling which allows one to trace the progress of Lithuania conditional on such factors as the level of development and the size of the population.
This report also aims to complement a qualitative report that documents the progress of Lithuania in science, technology and innovation (STI). This other report summarizes recommendations of those studies, reports on the progress achieved to date, and points to priorities for the future. Hence, these two reports combined provide a policy maker with both quantitative and qualitative information on where Lithuania stands in its RDI effort, and what could be the possible future steps to improve the country’s performance on this front.
The analysis presented in the report has revealed several key findings. These findings, as well as some policy recommendations emanating from them, are formulated below:
· As of 2007 Lithuania ranked 19th out of the 27 EU member countries on the Summary Innovation Index (SII). The analysis reveals that the level of Lithuania’s SII was consistent with its level of development (per capita GDP) and population size. However, much more can be done to put Lithuania’s performance above “average”. In other words, conditional on its level of development and the country’s natural circumstances, Lithuania has been doing fairly well on the innovation effort in general. Moreover, given the relatively low starting point, Lithuania shows the tendency to catch up with other EU member states. Nevertheless, more can be done to put Lithuania among “positive outliers” – countries that perform better than would be expected given their levels of development. In that regard, the example of the neighboring Estonia could be a good case to follow.
In “looking beyond averages”, or doing the analysis of the specific areas of the RDI both in terms of innovation inputs and outputs, we have identified: (i) the areas where the country is doing quite well (i.e., positives), and (ii) areas where a much more substantial effort is need to improve on things (i.e., must improvements ). In terms of positives, the following could be mentioned:
· The analysis indicates that Lithuania has generally strong foundations to be a knowledge-based economy. Lithuania is positioned quite well in comparison to the EU average on the quantitative indicators related to the knowledge base (i.e., innovation inputs). In fact, it leads over the EU on the share of the science and engineering (S & E) graduates, share of population with tertiary education, and youth education attainment level. However, it lags behind on participation in life-long learning, and the quality of education remains an issue to be addressed. There are also some historically strong niche RDI markets, such as a semi-conductor industry, where the country may be positioned well to produce new inventions. The international studies also indicate that Lithuania is also positioned quite well in the international context on the quality of education indicators, although those studies measure the math and science capabilities of the general school students.[2] According to the 2007 Trends in International Mathematics and Science Study (TIMSS), Lithuania’s 4th and 8th graders scored above international average on the mathematics test. However, the math and science scores (for pupils age 15) from the 2006 Program of International School Assessment (PISA) indicate that while Lithuania is not much lower than the EU25 averages, it is noticeably behind the leading countries in the EU. The analysis of the degree of Lithuania’s integration into the framework of the Bologna process also indicates that the country has made substantial progress, but some gaps remain.
· Lithuania spends a respectful share of its GDP on the public investments in R&D. Lithuania occupies an 8th place among the EU27 member countries on the share of GDP spent on public R&D. The analysis indicates that given its level of development, Lithuania actually over performs on the public RDI spending as a share of GDP. The 2007-2013 EU Structural Funds (SF) earmarked for R&D will further substantially increase the budget envelope available for public and private R&D, and the simulations we perform indicate that these funds could give a good push for Lithuania to reach a new higher trajectory in its RDI effort.
· Lithuania is doing well on the SMEs’ participation in the innovation diffusion activities. Lithuania is somewhat behind EU average on the share of Small and Medium Enterprises (SMEs) with in-house innovation activities and the SMEs innovation expenditures (as % of turnover). However, even unconditional for county circumstances, it does better than the EU average on the share of SMEs having cooperation agreements on innovation activities with other enterprises, and on the expenditures on information and communication technology (ICT) as a percent of GDP. Nevertheless, Lithuania’s SMEs are behind in the area of organizational innovation.
· Lithuania performs quite well in the area of knowledge absorption and we believe that this focus should be further encouraged. We find that in absolute terms Lithuania is still behind the EU average on the adoption of new knowledge. However, conditional on its level of economic development and population size the country is doing fairly well, which is not to say that it cannot do better. The country is doing quite well on the adoption of new technology as measured by the share of exports of machinery & equipment in the total exports. The share and volume of this type of exports has also increased significantly in the last few years.
In terms of must improvements, the following should be mentioned:
· The conditions need to be created (or improved) for the private sector R&D spending to increase. The country is currently well behind the EU average on the private sector R&D expenditures, even conditional on it’s level of development and population size. As a share of GDP, private spending accounts for only 0.2% in Lithuania versus an average of 1.2% in the EU. However, this position may well be improved wit the appropriate use of the EU Structural Funds. Various measures to improve the institutional environment and incentives for more of the private spending on RDI, such as the recently introduces tax incentives, may also be prove to performance boosters, but need to be closely monitored in terms of their impact and effectiveness.
· The area where Lithuania is clearly behind the EU average is the creation of new knowledge, as evident from the intellectual property indicators. This holds true conditional on the population size and per capita. These findings suggests that while identifying and exploring some niche markets for the creation of knowledge could be a good idea for the country, Lithuania with its small size and limited resources would at present hardly be able to compete with other innovation giants across the wide spectrum of high-tech products.
In terms of the general direction of developing the RDI sector, the following could be recommended:
· Lithuania would benefit significantly from having an overall RDI strategy. Such a strategy is lacking at the moment. This strategy should be linked to the country’s natural circumstances and industrial specialization. As a sister qualitative report rightly acknowledges, given the size of the economy (and population), Lithuania will always depend on its ability to learn from others and adapt technologies available elsewhere in the world to local needs. It may still choose to have concentrated knowledge production efforts, but the areas for these efforts need to be clearly defined and thought through.
· A greater focus on the adoption and diffusion of the latest knowledge and technologies could be a viable strategy to go forward. On many knowledge adoption indicators Lithuania already performs at the level consistent with its spending and other input indicators. Given the country’s solid foundations for a knowledge-based economy coupled with favorable business climate and the EU support in the form of the Structural Funds for RDI, the practical and viable approach for Lithuania could be a greater focus on the adoption and diffusion of the latest knowledge available elsewhere in the world, rather than the concentrated effort on the creation of new knowledge.
· In the current environment of the financial crisis, Lithuania’s reliance on the EU Structural Funds for R&D will be very important, because the public and private resources available for the sector will be significantly constrained, at least in the short term. We estimate that under the current economic forecast the total R&D spending envelope over 2008-13 would downsize by a cumulative of about EUR 335 million (compared to its total expected value under no crisis scenario).
1. Introduction
The objective of this report is to benchmark Lithuania’s progress and the current position in the Research, Development and Innovation (RDI) sector against that of other EU member countries. The findings of the report are based on the quantitative analysis, and we try to present those findings in a user friendly and concise format. Most of the RDI indicators presented here are readily available and widely used, which makes it easy to replicate the analysis at some point in a future. At the same time, the analysis uses some econometric modeling which allows one to trace the progress of Lithuania conditional on such factors as the level of development and the size of the population.
This report also aims to complement a qualitative report that documents the progress of Lithuania in science, technology and innovation (STI) in areas singled out by three major international reports prepared by the Norwegian Research Council (1996), the World Bank (2003) and the CREST-OMC panel (2007). This other report summarizes recommendations of those studies, reports on the progress achieved to date, and points to priorities for the future. Hence, these two reports combined provide a reader with both quantitative and qualitative information on where Lithuania stands in its RDI effort, and what could be the possible future steps to improve the country’s performance on this front.
In analyzing the RDI system, we focus on the indicators that cover the following 3 key segments of the system: (i) Knowledge creation (public and private R & D and inventions); (ii) Knowledge adoption (consuming the results of domestic and foreign R&D effort/inventions; purchase of new technology & equipment); and (iii) Knowledge diffusion (the spreading of knowledge and inventions through the favorable information technologies (IT) and business environment).
The analysis presented in this report effectively tries to answer the two key questions: (i) How Lithuania’s RDI effort compares to that of other EU member countries (i.e., benchmarking)?, and (ii) Does Lithuania gets an expected return for its investments in the public RDI (compared to other EU member countries)? In other words, is the investment in public R&D effective?
The benchmarking analysis is important because it: (i) provides an opportunity to measure the country’s position relative to that of other countries, and also to capture changes over time; (ii) gives a chance to identify the areas where the largest gaps exist, and thus provides information to policy makers needed to formulate policy priorities; (iii) allows one to utilize (and distinguish among) various frameworks for benchmarking that are already there, including: (i) The Lisbon Review (Measuring Europe’s Progress in Reforms); (ii) European Innovation Scoreboard (initiative of the EC under the Lisbon Strategy); (iii) Knowledge Assessment Methodology (an interactive benchmarking tool created by the World Bank).
The analysis of the RDI effectiveness is important because it: (i) identifies if the RDI funds are well spent, and how they can be spent better; (ii) discusses if the balance is right between public and private spending.
The remainder of the report is structured as follows. Section 2 presents a short general description of the RDI system in Lithuania in terms of its basic structure and financing arrangements. Section 3 analyzes how Lithuania’s RDI effort compares to that of other EU member countries on both RDI inputs and outputs. Section 4 looks at the effectiveness of the Lithuania’s public spending on RDI. Section 5 discusses some of the key challenges faced by the RDI system. Section 6 concludes with a summary of key findings and policy recommendations.
2. Research, development and innovation (RDI) system in Lithuania – some basic facts and financing arrangements
The R&D sector in Lithuania consists of mostly public research institutes plus the R&D undertaken by the private sector. The public research institutes are divided into two types: (i) university research institutes – established to carry out research of high international quality; they focus mainly on basic research and provide the research basis for university education and doctoral studies; there are currently (as mid-2008) 18 such institutes; (ii) state research institutes, which are established to carry out long-term research of international quality important for the Lithuanian science, economy and culture and for international cooperation; they conduct research involving groups of specialized scientists and requiring data collection and specialized experimental instruments; there are currently 17 such entities. The private research institutes are virtually non-existent.[3] The private R&D is undertaken by the private sector, but it currently accounts for only 25% of the total R&D expenditures. It is important to note that currently the Lithuanian Government has plans for consolidating and reforming the public R&D system, but concrete steps in that directions have not been really taken yet.[4]