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People More Important Than Money for Innovation

The greater the proportion of working people with university education in a region, the higher its innovation activity.
STUDY'S AUTHORS:
Stepan Zemtsov, Senior Research Fellow at RANEPA Institute for Applied Economic Research.
Alexander Muradov, Master's student at MIPT.

Human capital has been found to be more important than funding for technological innovation. Regions with lower proportions of people with higher education in their economically active population tend to lag behind in terms of innovation. Research suggests that worldwide, the opposite is true, and investment in R&D is of paramount importance. 

These are the findings made by a team of researchers from RANEPA IAER (Stepan Zemtsov and Vera Barinova), MIPT (Alexander Muradov) and HSE (Imogen Wade). They presented their conclusions at the 9th Conference on Model-based Evidence on Innovation and Development (MEIDE) hosted by the HSE, and will also publish them in the second issue of the HSE's Foresight journal.

Creative Class as Driver of Innovation 

A 1% increase in the number and quality of human capital leads, on average, to a 0.5% increase in technological innovation, while a 1% increase in all types of funding will only lead to a 0.15% increase in innovative technology produced. According to the researchers, "Economically active, university-educated urban residents — the so-called creative class — should form the basis of innovation-driven development and diversification of the economy."

The researchers used data from 1998 to 2011 on 67 Russian regions and measured human capital by the proportion of degree-holders among the economically active local population. They also measured innovation performance using a specially designed indicator based on the number of Russian and foreign patents and their potential for commercialisation.

The findings confirm the hypothesis that employed urban residents with university degrees show greater potential for producing innovations, having sufficient knowledge and skills for developing new technology and opportunities for 

Money Not the Most Important Factor

The study also produced the counterintuitive finding that salaries in R&D have no effect on innovative productivity. It would seem that higher pay should encourage potential inventors. However, the authors' analysis reveals that this theory does not hold in Russia. "This may indicate that the existing remuneration system is ineffective in terms of stimulating inventions," the researchers suggest. Another reason may be that scientists are not interested in having their innovations registered due to the complex patenting procedures.

As to other types of spending, their effects were found to be ambiguous and region-dependent. "Spending more on innovation in regions with weak human capital is unlikely to lead to a proportional increase in innovation activity," the authors contend.

Generally, spending on basic research can have the greatest positive impact. Spending on equipment can also be productive, particularly since many Russian universities and research institutions are affected by high wear and tear of their fixed assets.

Major Centres Attract Innovators

The authors also compared the innovative potential of centres versus peripheral areas and found a sustainable pattern in Russia, stating that, "There is an outflow of scientists to better developed neighbouring regions, increasing the human resource potential of major research centres and deepening the technological gap between leaders and laggards." On the other hand, the study has shown that patenting activity in a certain region can have a positive effect on innovation in neighbouring regions; however, knowledge flows across regions would require a separate study.

In any event, innovative activity in Russian regions today leaves much to be desired. "Russia's market for innovation is underdeveloped, with inefficient funding, and the quality of patented inventions remains low," the authors conclude.

Based on the study's findings, the authors make recommendations for boosting Russia's innovation potential, namely: providing more opportunities for higher education in metropolitan areas and encouraging training in the creative professions, supporting innovative projects and enabling infrastructure in major cities, investing in equipment, and setting up centres to facilitate commercialisation. The authors also warn against investing in high-tech industries located in remote areas with weak innovation potential, arguing that such spending would be ineffective.
August 24, 2016