In an era of economic upheavals due to radical technological change and rising trade protectionism, a major challenge facing policy makers is how to boost research and innovation across their economic system. The reason is quite apparent when considering what lies behind the sizeable and prolonged slowdown of economic growth in the EU countries in the last decade. Apart from cyclical developments, the economic slowdown has some of its roots in the long-term decline of productivity, which is the outcome of several factors affecting the ability of entrepreneurs to do research and innovate on a wide scale, thereby ensuring economic renovation and competitiveness.

SMEs are part and parcel of this negative trend, but structural factors and government policies also play a significant role. It is well established that there is a positive correlation between both innovation and productivity, on one side, and firm size, on the other side, whereby investment in innovation and productivity rise with the increase of firm size. But in the new economic paradigm of an “entrepreneurial economy” that has taken hold in both industrial and emerging economies, even small firms can have access to the same resources needed for R&I as those available to large firms, that rely on their ability to exploit economies of scale. R&I are no longer the preserve of large firms due to their command over ample means. Still, firm size matters. Thus, while the channels linking growth, productivity and innovation are shared by all countries and their firms, regardless whether more or less developed, structural characteristics and policies that affect this relationship widely differ across countries, leading to disparities in economic performance. (Read more…)

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