Assessing innovation spillovers from publicly funded R&D and innovation support: evidence from the UK

Knowledge embodied, explicit, and tacit - drives innovation. Research and development and other knowledge creation activities play a key role, as does the type of external knowledge sourcing central to models of open innovation. As knowledge is a semi-public or public good, however, firms may also obtain knowledge unintentionally through spillovers. We provide the first comprehensive analysis of the innovation spillovers from publicly funded R&D and innovation support activities in the UK to non-participating firms. Analysis is based on matched data from Gateway to Research, the UK Innovation Survey and the Business Structures Database. Conceptually we differentiate between horizontal (intra-industry), vertical (inter-industry) and university spillovers, each of which have different impacts. We also differentiate between the type of firms impacted by spillovers of each type and their position inside and outside clusters. Both reflect firms’ ability to appropriate spillover benefits. Spillovers prove weak in some instances and often limited in scale. University spillovers prove weak, although there is some evidence of a positive effect on patenting in high-tech and larger firms, and on new-to-the-market innovation in low-tech firms. Horizontal spillovers effects prove strongest in some rather specific regions, perhaps reflecting the relevance of industrial clustering in mediating knowledge spillovers, while vertical (inter-industry) effects prove more significant across a wider range of areas. Our study sheds new light on the mechanisms through which investment in the public science system has unintended innovation effects.