National Physical Laboratory

The impact of public support for innovation on firm outcomes

NPL Economist Mike King contributed to a report examining the effect of public funding on UK business innovation. The impact of public support for innovation on firm outcomes report, published by the Department for Business, Energy & Industrial Strategy (BEIS), examines how public innovation support affects the economic performance of businesses measured in terms of survival, employment and turnover.

The impact of public support for innovation on firm outcomes - report front cover

A study by Frontier Economics analysed the impact of direct public support for innovation including the use of National Measurement System (NMS) services. This study focused on assessing the economic impact of direct support for business innovation through grants from Innovate UK and NMS services from NPL, LGC and NEL.

Their study assesses the effect on survival and employment up to four years after receipt of support; and found clear evidence that companies who use NMS services have higher survival rates than a control group of non-customers. Moreover, support from the NMS laboratories can boost employment by 10%–15% within two to four years; with an average cost to the state of £18k to £23k per job. The results for Innovate UK are very similar, but in this case there is also some evidence of turnover increasing four years after being awarded a grant.

This is the second phase of analysis, building on previous research 'Business innovation: effect of public support, 2014'.

The study assesses the effect on survival and employment up to four years after receipt of these forms of support. It was commissioned by BEIS and Innovate UK to investigate the economic impact of public sector support for private sector innovation. It looked at direct support delivered by Innovate UK and three laboratories that underpin (NMS), focusing on grants from Innovate UK and paid services from NPL, LGC and NEL.

The study showed both positive survival and employment effects.

There is evidence of positive survival effects that appear to be the same for Innovate UK and the NMS laboratories. Survival effects grow from five percentage points one year after treatment to 11 percentage points after three years. Among the matched control firms, the survival rates are around 94% after one year and 84% after three years. In contrast, survival is a virtual certainty for treated firms. Finally, survival effects are noticeably larger for younger firms (two to five years old) than for older firms.

The positive employment effects occur about three years after a firm received support: with a grant from Innovate UK typically resulting in 40 extra employees and the use of NMS services resulting in around 20 extra employees. For both grants from Innovate UK and use of NMS services, the employment effects equate to an increase in employment of around 10%–15% against the corresponding counterfactual outcome. For Innovate UK there is also some evidence of turnover increasing four years after being awarded a grant.

Read 'The impact of public support for innovation on firm outcomes', BEIS Research Paper Number 3.

Read a blog post from Dan Hodges, Head of Economics and Evidence at Innovate UK, on Measuring the impact of our innovation grants.

Contact: Mike King

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Last Updated: 18 Apr 2017
Created: 18 Apr 2017

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