Research and development activities and innovative performance of firms in Luxembourg.

It is widely acknowledged that Research and Development (R&D) and innovation are important for economic success. This has guided the European Union Member States to decide, at the Barcelona European Council (2002), that public and private R&D inputs have to increase in order to reach 3% of GDP in 2010. In addition, Research and Development and also innovation are highly important topics on the agenda of Luxembourg public authorities. We can illustrate this by the deep increase of the public support of R&D activities since 2000. At first, we can note that Government Budget Appropriations or Outlays on R&D (GBAORD) have tripled between 2000 and 2005 (+193%). Secondly, public research centres have been developed (R&D expenses of these centres increase by 70% between 2000 and 2003). Thirdly, the University of Luxembourg has been created in 2003. Relating to this move, it seems quite interesting to study the effect of public and private R&D investments. In a more restrictive view, it seems also quite opportune to look at R&D impact on the firms innovative performance. This second thematic is the subject of this analysis. In order to study this, we will use the micro data from the Community Innovation Survey (CIS3) carried out in Luxembourg.1 This survey has many advantages for the purpose of our study. At first, it provides micro data of R&D input, external knowledge adoption and co-operation agreement, including co-operation with the ?science base? (i.e. scientific partners including public research centres). And secondly, it includes measurements of innovative results (i.e. percentage of turnover from innovative products). Based on this data, the analysis will examine the following questions: - What is the influence of firms R&D activities on their innovation output? - May external knowledge increase firms' innovation output? More specifically, have firms, engaged in R&D activities above a critical level, greater abilities to take advantage of external knowledge (i.e. absorptive capacity hypothesis). - Will co-operation with the science base (including Luxemburger public R&D centres) generate greater innovation outputs? The first section introduces our theoretical background to study Research and Development influence. The second section focuses on our reference model. The third section introduces at the data (CIS3) and presents the variables. Finally, the last section is devoted to the empirical analysis.