Skip to main content
SpringerLink
Log in

Building a bridge over the valley of death? New pathways for innovation policy in structurally weak regions

  • Original Paper
  • Published:
Review of Regional Research Aims and scope Submit manuscript

Abstract

We investigate if a regional policy shift by the federal state government of Saxony in 2007 enhanced the innovation performance of local SMEs compared to similar firms in other East German regions. From the perspective of innovation policy, the policy shift in Saxony is remarkable for its novel approach to overcome the so-called “valley of death” for innovative SMEs, which addresses the difficult transition from a scientific invention to its successful commercial exploitation. While public support to the design and development of market-ready new products and services together with their market launch is typically highly restricted by EU state aid law, Saxony’s novel innovation policy makes use of the EU’s de minimis principle. This principle permits unconditional public funding up to EUR 200,000 over three tax years. While such amounts cannot be expected to provide additional incentives for larger firms, however, de minimis-based funding may be an essential tool to foster innovation activities in SMEs. Our regional benchmarking approach based on micro data from the IAB Establishment Panel shows that micro and small firms in Saxony have become significantly more innovative than similar firms in other East German regions after the introduction of the novel policy in 2007. Our findings suggest that this new pathway to an SME-focused, close-to-the-market innovation policy may be a promising blueprint for EU innovation policy in structurally weak regions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5

Similar content being viewed by others

Notes

  1. A description of the “SME Instrument” as part of the EU Horizon 2020 funding strategy can be found at: https://ec.europa.eu/programmes/horizon2020//en/h2020-section/eic-accelerator-pilot.

  2. For further details on the German WZ 2008 classification, see https://www.destatis.de/DE/Methoden/Klassifikationen/Gueter-Wirtschaftsklassifikationen/Downloads/klassifikation-wz-2008-englisch.html.

  3. The available empirical studies on the effects of R&D funding are based almost exclusively on the innovation survey conducted by the ZEW (Mannheimer Innovationspanel—MIP), which represents the German contribution to the Community Innovation Surveys (CIS) of the European Commission. One disadvantage of the MIP is that only SMEs with at least 5 employees are covered in the survey and therefore micro enterprises are underrepresented. Since the proportion of innovators without R&D activity is significantly higher among micro-enterprises and their innovation expenditure includes R&D expenditure to an even smaller extent, the positive effects of R&D funding for SMEs tend to be overestimated. Instead, it is to be expected that micro-enterprises in particular will benefit even more from an innovation policy that is not only based on R&D grants, but also supports other innovation expenditure with grants.

  4. See the section dealing with data and estimation issues for a detailed description.

  5. See EFI (2018) for a discussion of potential causes behind this finding of declining innovation rates.

  6. When analysing the persistence of innovation output we focus on the period 2008 to 2018 because for this period information on innovation is available annually.

  7. See the SME Directive of the Free State of Saxony (Mittelstandsrichtlinie des Freistaats Sachsen) for institutional details on funding goals, conditions and regulations. Since 2007 the SME Directive has been repeatedly adjusted with regard to funding conditions and maximum funding levels. However, these adjustments, which have subsequently expanded the range of funding under the de minimis principle should not bias our empirical results.

  8. Ellguth et al. (2014) provide a detailed description of the IAB Establishment Panel. The information in the data set refers to establishments, not to firms. In the IAB Establishment Panel different sites of one firm are considered independent establishments. Unfortunately, it is not possible to identify whether different establishments belong to the same firm.

  9. Annual information on process innovation is only available from 2007 onwards, i.e. no pre-treatment observations can be observed, which prevents us from using this variable as further outcome indicator in the DiD estimation apporach.

  10. We exclude firms from retail and wholesale trade in the empirical analysis given their generally low level of innovativeness in terms of product innovations.

  11. Data on product innovations and product improvements are available with an annual frequency from 2007 onwards and bi-annually, i.e. every second year, before 2007. Thus, our panel data set has gaps throughout the sample period. The exact number of firm-year observations is shown in Table 4 for the DiD regressions.

References

  • Alecke B, Otto A, Untiedt G (2010) FuE und Innovationen in Ostdeutschland: Strukturelle Unterschiede bestimmen den Rückstand. Inf Raumentwickl 2010(10/11):759–771

    Google Scholar 

  • Alecke B, Reinkowski J, Mitze T, Untiedt G (2012) Does firm size make a difference? Analysing the effectiveness of R&D subsidies in East Germany. Ger Econ Rev 13(2):174–195

    Google Scholar 

  • Alecke B, Mitze T, Untiedt G (2013) Growth effects of regional policy in Germany: results from a spatially augmented multiplicative interaction model. Ann Reg Sci 50:535–554

    Google Scholar 

  • Almus M, Czarnitzki D (2003) The effects of public R&D subsidies on firms’ innovation activities. J Bus Econ Stat 21(2):226–236

    Google Scholar 

  • Auerswald PE, Branscomb LM (2003) Valleys of death and Darwinian seas: financing the invention to innovation transition in the United States. J Technol Transfer 28:227–239

    Google Scholar 

  • Bakhtiari S, Breunig R, Magnani L, Zhang J (2020) Financial constraints and small and medium enterprises: a review. https://www.iza.org/publications/dp/12936/financial-constraints-and-small-and-medium-enterprises-a-review (IZA DP No. 12936, IZA—Institute of Labor Economics). Accessed June 30, 2021

  • Becker B (2015) Public R&D policies and private R&D investment: a survey of the empirical literature. J Econ Surv 29:917–942

    Google Scholar 

  • Blien U, Phan thi Hong V (2015) 25 Jahre nach der Wiedervereinigung: Schwierige Startbedingungen wirken nach. IAB-Forum 2015(1):4–13

    Google Scholar 

  • Blum U (2019) The Eastern German growth trap: structural limits to convergence? Intereconomics 54(6):359–368

    Google Scholar 

  • BMWi – Bundesministerium für Wirtschaft und Energie (2019) Jahresbericht der Bundesregierung zum Stand der Deutschen Einheit 2019. BMWi, Berlin

    Google Scholar 

  • Brachert M, Dettmann E, Titze M (2019) The regional effects of a place-based policy—causal evidence from Germany. Reg Sci Urban Econ 79:103483

    Google Scholar 

  • Card D, Krueger AB (1994) Minimum wages and employment: a case study of the fast-food industry in New Jersey and Pennsylvania. Am Econ Rev 84(4):772–793

    Google Scholar 

  • Cincera M, Ravet J, Veugelers R (2016) The sensitivity of R&D investment to cash flows: comparing young and old EU and US leading innovator. Econ Innov New Technol 25(3):304–320

    Google Scholar 

  • Czarnitzki D, Licht G (2006) Additionality of public R&D grants in a transition economy. Econ Transit 14:101–131

    Google Scholar 

  • Czarnitzki D, Ebersberger B, Fier A (2007) The relationship between R&D collaboration, subsidies and R&D performance: empirical evidence from Finland and Germany. J Appl Econ 22:1347–1366

    Google Scholar 

  • Ellguth P, Kohaut S, Möller I (2014) The IAB establishment panel: methodological essentials and data quality. J Labour Mark Res 1/2:27–41

    Google Scholar 

  • Ellwood P, Williams C, Egan J (2020) Crossing the valley of death: five underlying innovation processes. Technovation. https://doi.org/10.1016/j.technovation.2020.102162

    Article  Google Scholar 

  • Expertenkommission Forschung und Innovation (EFI) (2018) Research, innovation and technological performance in Germany—report 2018. EFI, Berlin

    Google Scholar 

  • Expertenkommission Forschung und Innovation (EFI) (2019) Gutachten zu Forschung, Innovation und technologischer Leistungsfähigkeit Deutschlands – Gutachten 2019. EFI, Berlin

    Google Scholar 

  • Expertenkommission Forschung und Innovation (EFI) (2020) Gutachten zu Forschung, Innovation und technologischer Leistungsfähigkeit Deutschlands – Gutachten 2020. EFI, Berlin

    Google Scholar 

  • Falck O, Koenen J, Lohse T (2019) Evaluating a place-based innovation policy: evidence from the innovative Regional Growth Cores Program in East Germany. Reg Sci Urban Econ 79:103480

    Google Scholar 

  • Frank C, Sink C, Mynatt LA, Rogers R, Rappazzo A (1996) Surviving the “valley of death”: a comparative analysis. J Technol Transf 21:61–69

    Google Scholar 

  • Frenkel A (2003) Barriers and limitations in the development of industrial innovation in the region. Eur Plan Stud 11:115–137

    Google Scholar 

  • Gibbons S, Nathan M, Overman HG (2014) Evaluating spatial policies. Town Plan Rev 85(4):427–432

    Google Scholar 

  • Hall BH, Mairesse J, Mohnen P (2010) Measuring the returns to R&D. In: Hall BH, Rosenberg N (eds) Handbook of the Economics of Innovation. Elsevier, Amsterdam, pp 1033–1082

    Google Scholar 

  • Hewitt-Dundas N (2006) Resource and capability constraints to innovation in small and large plants. Small Bus Econ 26:257–277

    Google Scholar 

  • Izsak K, Radošević S (2017) EU research and innovation policies as factors of convergence or divergence after the crisis. Sci Public Policy 44(2):274–283

    Google Scholar 

  • Koschatzky K (2000) The regionalisation of innovation policy in Germany—theoretical foundations and recent experience. Working papers firms and region no. R1/2000. Fraunhofer Institute for Systems and Innovation Research (ISI), Karlsruhe

    Google Scholar 

  • Koschatzky K, Lo V (2005) Innovationspolitik in den neuen Ländern. Bestandsaufnahme und Gestaltungsmöglichkeiten. Fraunhofer IRB, Stuttgart

    Google Scholar 

  • Kreditanstalt für Wiederaufbau (KfW) (2017) SME innovations: seven reasons for the decline in the share of innovators. KfW research, no. 185, 3 november 2017

    Google Scholar 

  • Kreditanstalt für Wiederaufbau (KfW) (2019) KfW-Innovationsbericht Mittelstand 2018 Innovatorenquote wieder rückläufig. KfW Bankengruppe, Frankfurt am Main

    Google Scholar 

  • Kreditanstalt für Wiederaufbau (KfW) (2020) KfW-Innovationsbericht Mittelstand 2019. KfW Bankengruppe, Frankfurt am Main

    Google Scholar 

  • Kroll H (2012) Regional innovation report (Saxony). On behalf of the the European Commission, Enterprise and Industry Directorate—General Directorate D—Industrial Innovation and Mobility Industries. https://ec.europa.eu/growth/tools-databases/regional-innovation-monitor/sites/default/files/report/saxony_region_rim_report_120412.pdf. Accessed June 30, 2021

  • Lechner M (2010) The estimation of causal effects by difference-in-difference methods. Found Trends Econom 4(3):165–224

    Google Scholar 

  • Link AN, Scott JT (2013) Market failure and public support of R&D. In: Bending the arc of innovation: public support of R&D in small, entrepreneurial firms. Science, Technology, and Innovation Policy. Palgrave Pivot, New York

    Google Scholar 

  • Madrid-Guijarro A, Garcia D, Van Auken H (2009) Barriers to innovation among Spanish manufacturing SMEs. J Small Bus Manag 47(4):465–488

    Google Scholar 

  • Martin B (2016) R&D policy instruments—a critical review of what we do and don’t know. Ind Innov 23(2):157–176

    Google Scholar 

  • Mcintyre RA (2014) Overcoming “the valley of death”. Sci Prog 97(3):234–248

    Google Scholar 

  • Mina A, Di Minin A, Martelli I, Testa G, Santoleri P (2021) Public funding of innovation: exploring applications and allocations of the European SME instrument. Res Policy 50(1):104131

    Google Scholar 

  • Mohen P, Roller L (2005) Complementarities in innovation policy. Eur Econ Rev 49:1431–1450

    Google Scholar 

  • OECD (2005) Oslo manual: guidelines for collecting and interpreting innovation data. OECD, Paris

    Google Scholar 

  • Pontikakis D, Doussineau M, Harrap N, Boden M (2018) Mobilising European structural and investment funds and horizon 2020 in support of innovation in less developed regions. JRC technical reports S2E. Joint Research Centre (JRC), the European Commission’s science and knowledge service, Seville

    Google Scholar 

  • Rammer C (2020) Dokumentation zur Innovationserhebung 2019. ZEW Dokumentationen 20-01. Leibniz Centre for European Economic Research (ZEW), Mannheim

    Google Scholar 

  • Wessner CW (2005) Driving innovations across the valley of death. Res Technol Manag 48:9–12

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Gesellschaft für Finanz- und Regionalanalysen (GEFRA), Althausweg 117D, 48159, Münster, Germany

    Björn Alecke

  2. Department of Business and Economics, University of Southern Denmark, Campusvej 55, 5230, Odense, Denmark

    Timo Mitze

  3. Institute for Employment Research (IAB Nord), Projensdorfer Straße 82, 24106, Kiel, Germany

    Annekatrin Niebuhr

  4. Department of Economics, Christian-Albrechts-Universität zu Kiel, Olshausenstr. 40, 24098, Kiel, Germany

    Annekatrin Niebuhr

Authors
  1. Björn Alecke
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Timo Mitze
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Annekatrin Niebuhr
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Timo Mitze.

Ethics declarations

Conflict of interest

B. Alecke, T. Mitze and A. Niebuhr declare that they have no competing interests.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

The original online version of this article unfortunately contained layout errors in Eq. (1) and Table 2, which have been corrected.

Appendix

Appendix

 

Fig. 6
figure 6

Firm innovation rates in Germany by firm size, 1998–2018 (1 = 100%). (Source: Own figure based on data from the IAB Establishment Panel). Note: Questions on innovation activity were included in the IAB establishment panel only every third year before 2007. The information is available annually since 2007. (See Sect. 5 and Ellguth et al. (2014) for a more detailed description of the data)

Full size image
Table 5 List of WZ 2008 sectors included in DiD estimation
Full size table
Table 6 Descriptive statistics of firm-level covariates—micro and small firms. (Source: Based on data from the IAB Establishment Panel)
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Alecke, B., Mitze, T. & Niebuhr, A. Building a bridge over the valley of death? New pathways for innovation policy in structurally weak regions. Rev Reg Res 41, 185–210 (2021). https://doi.org/10.1007/s10037-021-00156-9

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10037-021-00156-9

Keywords

JEL codes

Search

Navigation