Growth through Research and Development - what does ... - Vinnova

2 Government instruments forfunding R&DThe Government has three main instruments for funding research, each ofwhich has advantages and disadvantages in economic-theoretical terms(David et al., 2000; Guelec and van Pottelsberghe, 2003).2.1 Own R&D at Government research institutes anduniversitiesThe Government can itself conduct R&D that is mainly funded by theGovernment at its own research institutes and universities. In Europe, thistype of R&D accounts for the major part of the Government researchbudgets. A primary objective of the research institutes is to satisfy publicneeds. The universities mainly produce basic research that can then be usedby companies in their applied research. The universities, however, have amore independent research agenda compared to the research institutes,which makes them less sensitive to Government directives. TheGovernment controls large parts of the universities’ research budgets,however, which makes them relevant to the politicians. The universities andresearch institutes affect the productivity of business and industry andprivate R&D indirectly.2.2 Direct funding of the companies’ R&DThe Government can provide direct funding for R&D that is performed bycompanies. This form of funding aims to increase the marginal return on thecompanies’ R&D. There are two alternatives here:• Funding of contract R&D, where the funder rather than the performerowns the results of the research. This is common in the defence industry,for example.• Funding in the form of grants or subsidies where the companies thatperform the R&D own the results.In the case of direct funding, it is often the Government that decides whattype of project should be funded. Direct funding can, for example, beawarded to projects where the social return is high compared to the privatereturn (the early phases of technology projects) or to projects that are usefulto the Government’s own objectives (defence, healthcare). R&D grantsoften comprise specific demands, e.g. that the company establishescooperation with universities or other companies. Another demand may be9