Quarterly research and innovation literature review: Business, innovation and productivity

This edition of the review includes recent papers linking businesses to research and innovation (R&I), with a focus on how R&I performance enhances productivity.

Business dynamism appears to be declining worldwide over the last years, and the COVID-19 crisis risks accelerating this trend (see also review 2020/Q2 and Q3). On the other hand, some superstar firms seem to have reached higher market shares during the pandemic, which has several implications, including for competition policy.

In this context, it is important to understand business dynamics related to productivity. Productivity is a fundamental driver of sustainable economic growth and prosperity. This review highlights the role of different factors that stimulate productivity growth: investments in intangibles, the complementarity between R&D and knowledge spillovers, and the adoption of digital technologies such as AI.

Policymakers have several instruments at their disposal to boost productivity, and a few ones are covered in this review. These are notably R&I instruments (direct R&D subsidies and indirect support through R&D tax incentives), human capital and skills policies and reforms of the business environment, which reach from taxation to customs and trade regulations. The role of venture capital as an important source for the financing of innovation, and the related constraints, should also be properly considered.

At the same time, spurring innovation should be done in the right direction. Mission-oriented policies contribute to addressing the challenges of our time. Evidence shows that initiatives like the European Carbon Market stimulated low-carbon patenting and R&D spending. However, changing direction could also generate switcing costs, as examinied in this review in the context of scientific research.