Formal macro approaches to growth demonstrate both theoretically and empirically the key role of technological progress and innovation in the growth of productivity and GDP - see here. At the more micro level there is research that demonstrates strong links between the growth of firms and innovation. And, there is much research evidence that R&D, and business R&D in particular - see this - plays the key role in innovation. Hence, there is much evidence that R&D has a positive relationship with productivity growth alongside other influences. R&D also can play a major role in technology transfer because it allows companies to learn about leading technological advances - here - and may raise the absorptive capacity of the firm - this.
However, both research and policy need to understand better the relative roles of domestic R&D and technology transfer to domestic innovation at the regional level. The role of research in the higher education (HE) sector, the significance of commercialisation from the HE sector, and the extent to which innovation and private sector R&D are informed by research in the HE sector and vice versa, also need to be better understood.
Scotland is a case in point. The chart below draws on recent Scottish Government data and highlights both the low absolute and relative level of business R&D (BERD) in Scotland and the high levels of higher education R&D (HERD).
It is also evident from the chart that HERD was on a rising trend over the past decade while BERD displayed a declining, all be it shallower, trend.
When we examine Scotland's GDP performance we see that over the period it is broadly similar to the OECD average as this chart shows:
Does this mean that HERD is a substitute for BERD?
I doubt it.
First, other drivers of growth may be playing different roles in Scotland compared to the OECD. Secondly, one of these drivers may be the role played by the branches of foreign multinationals located in Scotland. They bring in new products but most of the R&D is done elsewhere. Hence, measured Scottish innovation should be a lot higher than business R&D and this is what the data for Scotland in the Community Innovation Survey appear to show. Thirdly, it seems unlikely that HERD is a direct substitute for BERD. There may be some R&D that ordinarily would be done in companies that is done in Scottish universities. But for the most part HERD is less close to the market and much research may have little prospect of commercialisation, such as economics research perhaps! Yet, Scottish universities appear to do quite well on measures of commercialisation, see this and this. It would appear to be the case that Scottish businesses do not take sufficient advantage of university research. But the universities cannot escape total responsibility for this since the knowledge exchange systems that currently exist can hardly be described as open.
Either away, Scotland has a major resource in the research undertaken in its large HE sector. Business in Scotland does relatively little R&D by international standards. This does not appear to be too much of a current problem for Scotland's GDP growth rate. Other drivers of growth, whether HE R&D, innovation in foreign multinationals based here, or others not specified, appear to be compensating.
But if Scotland is to rebalance its economy more towards manufacturing and trade, it is hard to see the low level of business R&D as anything but a weaknesses; as is the apparent failure of Scottish business to capitalise more on university research.
Changing this situation offers a continuing challenge to industrial policy in Scotland.