Research and development
The first phase of the innovation process often starts with research and development (R&D). The basic knowledge required to produce high quality and high-tech products for goods and services alike is created through this R&D. However, R&D and the commercialisation of its results do not necessarily take place within one and the same region, a fact that can also affect regional economic growth (1). Regional income from R&D investments depend on several factors such as: supplementary R&D activities with other economic activities along the value chain; the aim of R&D activities (basic research, applied research or experimental development), and the size of the regional home market and access to capital. The time factor also plays an important role since successful innovation processes often have a time horizon of several decades. A specialised R&D sector of relevant size and quality is a first step towards economic success in the modern knowledge economy.
Measured in this way, the Öresund region takes a leading role in the Nordic countries as well as in Europe (see Chapter 5 Industry). This prominence is also visible in the access to capital - and foreign capital - to finance research and development. It can also be said that the general climate for foreign investments in the Nordic countries, Denmark in particular, is one of the best in the world (2).
R&D investments
Investments in research and development are a central measure of the ability and commitment of regions to increase basic knowledge. However, this is not necessarily the same thing as commercial production of innovative R&D results. The Lisbon Strategy, which aims to make the EU the most competitive knowledge economy in the world, lists the intensity of R&D investments as one of the fourteen indicators to measure success. The target for 2010 is an investment level of at least 3 percent as a share of GDP, of which two thirds are to be financed through the business sector.
With the exception of Norway, the Nordic countries together with Japan are world leaders concerning total R&D investments. In 2007 Sweden and Finland made R&D investments above the targets of the Lisbon Strategy. Denmark and Island had lower but still considerably higher levels compared to the average for the EU and the OECD. Nearly two thirds of R&D expenses were financed by the domestic business sectors, a high share from an international perspective. The situation is similar to the conditions in the United States, Germany and Switzerland. Only Japan and Luxembourg exhibit larger financial contributions from the business sector. The remaining investments are mostly from public sources within the countries. In Denmark and Sweden nearly one-tenth of R&D investments come from abroad. The share of foreign R&D investments from abroad is even a bit larger in Iceland.
- R&D expenses as a share of GDP within the OECD in 2007
Source: OECD
Looking at the R&D commitment from the business sector in relation to total investments, there is a clear connection between these investments. That is to say, the higher the investments from the business sector, the higher the level of general investments in the country (3). This connection is equally clear in most of the Nordic regions. The Öresund region is among the leading European regions when it comes to R&D expenses as a share of GRP.
Even though the Öresund region cannot be considered as a functionally united region today, we see that a considerable amount of total R&D investments in Denmark and Sweden are concentrated in the Öresund region. Of the total R&D investments in Denmark and Sweden in 2005, 32 percent were allocated to the Öresund region. The region has also increased its share over time. In 1997 the Öresund region accounted for 25 percent of total R&D investments from the business sector in Sweden and Denmark, showing an increase of 7 percentage points in 2005.
It is a consistent pattern that most of R&D investments occur in metropolitan areas. Investments from industry in Denmark are largely concentrated to Öresund DK and to the Capital Region of Denmark in particular. About 74 percent of Danish R&D investments from the business sector were for Öresund DK: 71 percent for the Capital Region of Denmark and 3.1 percent for Region Zealand. In Sweden, most of these investments are in Stockholm, followed by Västra Götaland county and Öresund SE.
- R&D expenditure as a share of regional GRP, leading regions in the EU in 2005 (current prices in EUR).
Calculations by Region Skåne. Footnote: The Öresund region is not included in Eurostat’s NUTS classification but is calculated as a model<br /> based on statistics from the national statistical agencies in Denmark and Sweden.
Even in Sweden, considerable parts of industry’s R&D investments occur in the capital city region, but Stockholm’s role is not as dominant in Sweden as Copenhagen is in Denmark. About 33 percent of industry’s R&D investments are made in Stockholm county, followed by 27 percent in the Västra Götaland region and 18 percent in Öresund SE (figures from 2007).
However, when measuring R&D spending as a share of gross regional product the picture looks different. Among the Nordic regions, western Sweden (Gothenburg) is highest with 5.40 percent. Stockholm and east central Sweden are farther down on the list at 4.29 and 3.99 percent respectively. However, the total Öresund region is farther down on the list at 3.90 percent.
An important explanation as to why several German and Swedish regions are ranked high on the list of R&D investment is that much of these investments are concentrated in the automotive industry that is highly concentrated to places like Braunschweig and western Sweden.
The structure of investments is nearly identical on both sides of the sound. Significant and market-oriented R&D investments from the business sector (three fourths) are combined with more moderate investments from universities and government agencies. (However, the picture in Region Zealand looks a little different with more activity from government agencies). Stockholm is characterised by the same pattern. In western Sweden (Gothenburg) and in Etelä-Suomi (Helsinki) however, industry and government agencies are stronger R&D actors than in the Öresund area.
Regional R&D investment among the neighbours of the Öresund region is generally moderate bordering on weak. St. Petersburg and Berlin are the main areas investing more intensively in research and development, but Hamburg is also another area investing in R&D. In Berlin, R&D investments from industry account for only half of the investments, while investments from government agencies are more than three times larger than in the Öresund area. In Warsaw, government is nearly as strong a player as industry is in the Capital Region of Denmark. Like Helsinki, Hamburg and Tallinn have a weaker emphasis from industry in their investment portfolio while
government investment is larger. In line with this, research and development in the eastern European metropolitan areas in the Baltic Sea area are generally less market-oriented than in the Nordic countries.
In the academic area, the Öresund region has two world-class universities and three top European universities, giving the region a strong position within the Nordic countries and among its closest neighbours in northern Europe. Only Stockholm has an equally strong ranking (See section later in this chaptern and chapter 3 Education).
If the investments are compared internationally in nominal amounts such as above in euros, it is not certain that a similarly large sum can finance as much research and development in different countries and regions. This is of course due to differences in the structure of industry, direction of research and different cost structures. Another part of the explanation are the salary differences among countries and regions, and also among industries.
Differences in purchasing power for investment/expenditure are normally adjusted with different price indices. However, this is not possible in the R&D sector. As in so many other service industries, research and development requires sufficient staff. Thus, the main part of R&D investments go to salaries, which roughly account for two thirds of the costs in the case of the Öresund region (4). Even if it is currently not possible to analyse the effects of these conditions in detail, it is reasonable to assume that R&D investments on the Danish side of the sound probably have lower purchasing power and thus finance less R&D than their counterparts in Sweden. This fact is even more significant when making the same comparison between the regions of western and eastern Europe. The differences in purchasing power may significantly affect the pattern of R&D investment in Europe in the longer term.
(1) This fact is supported by several empirical studies. Further evidence was given in a study from 2006, where the connection between both R&D intensity as the rate of patents on the one hand and economic development (measured as GDP growth per inhabitant) on the other was compared for 240 European regions (NUTS 2 regions). The study maintains that the region which invested the most in R&D, Braunschweig in Germany, is at the same time the fourth worst region measured in economic growth. Conversely, none of the regions in the Top 10 Growth League have an R&D intensity exceeding two percent (Hanell, T & Neubauer, J: Geographies of Knowledge Production in Europe. Nordregio WP 2006: 3).
(2) Forbes Capital Hospitality Index 2008. The Nordic countries are in descending order (world ranking in parentheses): Denmark (1), Finland (3), Sweden (6) and Norway (15).
(3) Hanell, Neubauer 2006
(4) No statistics exist in Denmark and Sweden on the R&D investments of the sectors by type of expense. However, in Germany these questions exist in R&D surveys. In the German surveys, it is shown that about two-thirds of R&D expenses go to financing salaries for most industries, especially in the R&D sector. (Stifterverband für die Deutsche Wissenschaft: FuF-Datenreport 2007. Tabellen und Daten, s. 38 Tabelle 14).
