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Role of innovation increases, prompting interest of government, private sector to invest more in R&DAnalysis of global trends in innovative activity funding

By Dildora Shadiyeva
Senior Researcher, Tashkent Financial Institute, Uzbekistan

The role of innovation as a factor of economic growth and competitiveness of nations is increasing, and prompting interest of governments and private sector to invest more resources to R&D sector. According to The Global Competitiveness Report 2015-2016, which includes 140 countries of the world, it is indicated that 38 economies are at the innovation-driven stage. They are European countries (26 countries), the USA, Canada, Japan, The Republic of Korea, Singapore, Australia, Hong-Kong, Taiwan, Qatar and etc. 20 countries of the world are on the way to transition to innovation-driven stage (countries of Latin America, South-Eastern Europe, Malaysia, Russia, Turkey, Oman).

▲Investments done by these eight countries amount to more than 70% of global expenditure on R&D.

Investigating world experience in the formation and development of national innovative system and using modern tools of innovation activity funding has an importance for all countries which are on the way to transition to innovation-driven stage. Insufficiency of innovation activities financial support originates low return from science and research, low economic effect from R&D. That is why consequently problem of timely innovation activity funding, choosing sources and methods of financial support are very topical at the present stage. Funding is indispensable condition for realizing innovative ideas to innovative products.
According to database of The Organization of Economic Cooperation and Development (OECD), the world leaders in Gross Domestic Expenditure on R&D in absolute sums (current PPP) are the USA, China, Japan, Germany and the Republic of Korea.

It can be seen, there is a positive raising trend of expenditure on R&D in 2005-2015. On absolute sums of expenditure on R&D, United States of America have the highest expenses and their spending more than 450 billion US dollars. In China the volume of investments on R&D has increased by more than 4.29 times over the 2005-2015, and in the Republic of Korea - more than 2.4 times. They indicate that there are paying a great deal of attention to the problems of innovation activity development in these countries in recent years. Nevertheless, top of ten world leaders with the highest expenditure on R&D as a percentage of GDP include, inter alia, the Republic of Korea, Israel, Japan, Finland, Sweden, where this indicator has exceed 3-4% of GDP in recent years.

In 2015 leader in “Gross Domestic Expenditure on R&D as a percentage of GDP” indicator have become The Republic of Korea (more than 4 % of GDP), Israel (about 4%) and Japan (3.58 %). The Republic of Korea’s expenditure on R&D as a percentage of GDP has a stable trend of growth in spite of the global financial and economic crisis (2008). Due to wide involving the private and corporate sectors in intensifying innovation processes the Korean Government achieved growth of this indicator during 2005-2015 from 2.63% to 4.04% of GDP.

In the world practice, success of innovation policy usually depends on the investment activity of business entities which are able to run large-scale applied researches and experimental development. The result of them will be innovative goods, services or modern technologies, which are in great demand in markets. Business sector actively participate in cross-border funding of R&D in different countries. In countries such as the Republic of Korea, Japan, China a share of business in R&D funding is exceeds a volume of government funding and reaches more than 70% of the total R&D spending. The activity of business structures in R&D funding in these countries have been achieved due to favorable investment climate, tax and other incentives widely used, in the result burden on the state budget has been reduced.
In 2015, Asia accounted for 35% of the global total innovation spending for the 207 largest spenders, surpassing both North America (33%) and Europe (28%). In 2015, Korean company Samsung invested $14.1 billion dollars on R&D sector, Toyota Corporation – 9.2 billion US dollars. (Source: Global strategy consulting firm Strategy& PricewaterhouseCoopers).

▲ In 2015 leaders in Gross Domestic Expenditure on R&D as a percentage of GDP indicators have become The Republic of Korea, Israel and Japan.

By studying innovative activity funding in global spectrum we revealed several trends, inherent to actors of world economy over the past decades:
First, the structure of global R&D funding sources is changing. R&D investments shares of Asian countries increase at almost 1% per year. While American and European R&D continue to increase absolute R&D investments, their shares decrease.
Second, economic development enlarges a share of non-governmental sources in innovation activity. The state serves as a provider of financial support for basic research and an innovative infrastructure creator. In countries, which pursue an innovative way of development, a role of public institutions is characterized by the transition from direct funding of innovations to creation of regulatory framework to stimulate and foster development of private innovative business.

Third, in innovative activity funding have appeared professionals, investors, special funds, experts on the selection, expertise and financing the innovation projects. They accompany the project from the start phase of the innovation process to mass production of innovative goods. These professionals and institutions can be united into special new industry – venture financing. They promote collaboration of institutional and private investors with scientists and developers.

▲ A Korean company Samsung is the biggest R&D spender in Asia and the second in the world (after Volkswagen).

It must be noted that in the world economy one can observe considerable growth of innovative activity of developing countries such as China, Korea, India, Israel, etc. A dynamic increase of high-tech production, volume of export, R&D funding, number of researchers, scientific publications, etc. can also were witnessed in these countries. Thus, innovation leadership of United States, Japan and Germany in the past century is challenged by newly emerging countries who can sustain dynamic competition.
Thereby, innovation activity funding in the world economy does not have a purpose to only increase the competitiveness of national economies or particular companies, but also to ensure a stable economic growth through commercialization of scientific achievements and encouraging the economy to a qualitatively new, innovative development stage.

About the author: Shadiyeva Dildora Khamidovna, Senior Researcher, Tashkent Financial Institute, Tashkent, Uzbekistan. E-mail: dildora-shadieva@mail.ru, tel: (99871) 235-00-11

Lee Kyung-sik  edt@koeapost.com

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