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Innovation Index 2012

Innovation Index 2012

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Published by Nesta
nnovation is more than R&D, yet the measurement of innovation relied for a long time just on R&D metrics.

This led to innovation policies that were much focused on R&D. To overcome this, the UK government asked Nesta to develop a new Innovation Index that captured wider forms of innovation beyond R&D.

At the heart of the Index is a wider and more complete measure of how much the UK invests in innovation, and what the benefits of this are to productivity.

This research brief summarises the main findings from the third release of Nesta's Innovation Index, covering the period from 1990 to 2009. The full results are described in the Nesta Working Paper 12/09, UK Innovation Index: Productivity and Growth in UK Industries, by Peter Goodridge, Jonathan Haskel and Gavin Wallis.

The Innovation Index uses investment in intangible assets as the main measure of innovation investment. Therefore, the Index measures not only scientific R&D, but the downstream co-investments needed to commercialise and profit from new ideas.
nnovation is more than R&D, yet the measurement of innovation relied for a long time just on R&D metrics.

This led to innovation policies that were much focused on R&D. To overcome this, the UK government asked Nesta to develop a new Innovation Index that captured wider forms of innovation beyond R&D.

At the heart of the Index is a wider and more complete measure of how much the UK invests in innovation, and what the benefits of this are to productivity.

This research brief summarises the main findings from the third release of Nesta's Innovation Index, covering the period from 1990 to 2009. The full results are described in the Nesta Working Paper 12/09, UK Innovation Index: Productivity and Growth in UK Industries, by Peter Goodridge, Jonathan Haskel and Gavin Wallis.

The Innovation Index uses investment in intangible assets as the main measure of innovation investment. Therefore, the Index measures not only scientific R&D, but the downstream co-investments needed to commercialise and profit from new ideas.

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Published by: Nesta on Oct 03, 2012
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UK INNOVATION INDEX:
MEASURING THE CONTRIBUTIONOF INNOVATION TO ECONOMICGROWTH, AND HOW THISVARIES ACROSS SECTORS
 
Better innovation metrics are important or sound policymaking
Innovation is more than R&D, yet the measurement o innovation relied or a long time just on R&D metrics. This led to innovation policies that were overly ocused on R&D.
 
Toovercome this, the UK government asked Nesta to develop a new Innovation Index thatcaptures wider orms o innovation beyond R&D.This research brie summarises the main ndings rom the third release o Nesta’sInnovation Index, covering the period rom 1990 to 2009. The ull results are describedin the Nesta Working Paper 12/09,
UK Innovation Index: Productivity and Growth in UK Industries
, by Peter Goodridge, Jonathan Haskel and Gavin Wallis, available at Nesta’swebsite (
www.nesta.org.uk/workingpapers_wp12-09
).
The UK invested £124 billion in intangible assets in 2009, more than in tangible assets
UK investment in intangible assets has been greater than that or tangible assets since theearly 2000s. In 2009, investment in intangibles stood at £124 billion, as opposed to £93billion or tangible investment (which includes physical assets such as machines, equipmentand buildings). Respectively, these represent 12 per cent and 9 per cent o gross valueadded in the private sector (Figure 1).
1
 
Investment in intangibles ell during the recession, but by less than tangible investment
In 2008 and 2009, investment in tangible assets ell sharply, whilst investment inintangibles experienced a much smaller all.
2 3
Looking at the ull decade reveals a steadydecline in UK investment as a share o value added, alling rom approximately 27 per centin 1999 to 21 per cent in 2009 (23 per cent in 2007, prior to the recession). This decline isdriven by investment in tangible assets, which declined rom almost 15 per cent o valueadded in 1998 to 9 per cent in 2009 (11 per cent in 2007). Instead, investment in intangiblesas a share o value added rose steadily throughout the 1990s, peaking at almost 13 per centin 2001 and declining very slightly since then to 12 per cent in 2009.
 
2
 
UK InnovatIon InDEX:
Measuring the contribution of innovation to economic growth, and how this varies across sectors
604020801001201400
(a) Current prices, £bn(b) Share of private sector gross value added
   1   9   9   1   1   9   9   2   1   9   9   3   1   9   9  4   1   9   9   5   1   9   9  6   1   9   9   7   1   9   9   8   1   9   9   9   1   9   9  0   2  0  0  0   2  0  0   1   2  0  0   2   2  0  0   3   2  0  0  4   2  0  0   5   2  0  0  6   2  0  0   7   2  0  0   8   2  0  0   9
Tangible investment
Year
10%5%15%20%
Intangible investment
0%
   1   9   9   1   1   9   9   2   1   9   9   3   1   9   9  4   1   9   9   5   1   9   9  6   1   9   9   7   1   9   9   8   1   9   9   9   1   9   9  0   2  0  0  0   2  0  0   1   2  0  0   2   2  0  0   3   2  0  0  4   2  0  0   5   2  0  0  6   2  0  0   7   2  0  0   8   2  0  0   9
Year
Figure 1:
Total investment in intangible and tangible assets in the UK private sector
 
3
 
UK InnovatIon InDEX:
Measuring the contribution o innovation to economic growth, and how this varies across sectors
Box 1:
The methodology behind the index, and main improvementsregarding prior versions
 At the heart o the Index is a wider and more complete measure o how much theUK invests in innovation, and what the benets o this are to productivity. Thisheadline indicator is supported by three complementary tools: an assessment ohow avourable a climate the UK provides or innovation based upon availableinternationally comparable data,
4
a company–level innovation measurement tool,
5
anda public sector innovation index.
6 7
 The Innovation Index uses investment in intangible assets as the main measure oinnovation investment. Thereore, the Index measures not only scientic R&D, but thedownstream co–investments needed to commercialise and prot rom new ideas.Specically, it includes R&D, design, organisational improvement, training and skillsdevelopment, sotware development, advertising and market research, and otherknowledge investments (e.g., copyright development and mineral exploration).
8
 A growth accounting approach is then used to estimate the contribution oinnovation to productivity growth, in a consistent way with the UK national accounts.Specically, the contribution o innovation includes two components: (a) the directcontribution o investment in intangibles to productivity growth and (b) Total FactorProductivity (TFP), which is a measure o economic growth not accounted byincreases in actor inputs, such as tangible and intangible capital or labour quality,and thereore captures the spill-over benets o innovation investment, but also shortterm fuctuations in capital utilisation and measurement error.Work has continued to improve the methodology behind the Index since its rstpublication. Relative to the prior release, these are the main changes introduced inthis latest version o the Index:
9
 1. More comprehensive industry–level data, providing industry–level estimates oinvestment in intangibles, growth accounting decompositions at the industrylevel and estimates o the contribution o each sector to aggregate productivitygrowth.2. Improved estimates o investment in intangibles, building on data rom the Nesta–ONS Intangible Assets Survey (IAS),
10
eliminating potential double–counting romoutsourced activity, and incorporating new estimates o UK investment in artisticoriginals.
11
Tax adjustment o rental prices has also been incorporated to thegrowth accounting analysis.3. Estimates using the most up–to–date ocial data, the ONS 2011 Blue Book, withdata up to 2010 and detailed input–output data up to 2009. EUKLEMS data up to2007 has also been used in the industry analysis.4. A wider coverage o the UK private sector, with the new inclusion o the rangeo consumer, personal and recreational services contained in section ‘O’. Theprivate sector data presented here thereore excludes the public sector, privatedelivery o public services such as education and health, and dwellings (actualand imputed rents).

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