Source publication: Innovation in Irish Enterprises 2018

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The chart above shows innovation expenditure for a few distinct sectors of the Irish economy. Total innovation spending in the Irish economy in 2018 stood at €5.5bn. The largest contributors to this came from the Foreign Manufacturing sector which spent €1.6bn, while the Foreign ICT sector was the next largest, spending €1.2bn on innovation. The strong spend recorded for the Irish side of the Manufacturing sector at €726 million. The Irish Financial Services sector spent €543 million on innovation, approximately 10% of the total spend in 2018. The total spend on innovation in the Financial services sector was €597 million. Interestingly, the labour share has been on the decline in this sector, since 2013 and the large amount spent on innovation in the Financial sector is evidence of the sector investing in increased automation through the acquisition of Machinery and Software. The Agriculture, Electricity and Water sectors spent the least on innovation. As Electricity and Water have recorded strong growth in investment in Machinery and Equipment and Intangible assets in recent years, the focus for these sectors may not have been on innovation spending as defined here.

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A comparison of Innovation expenditure in the Irish and Foreign sector in 2018 is shown in Figure 6.2. In-house R&D expenditure was the most significant category of innovation expenditure for both the Irish and Foreign sectors. The Foreign sector spent €1.9bn, while the Domestic sector spent €1.1bn. The acquisition of Machinery and Equipment was second largest element of innovation expenditure, with the Foreign element amounting to €775 million[1] and the Domestic spend about €350 million. Overall, the Foreign sector spending exceeded Domestic expenditure on innovation activities in nearly all cases. The large amounts spent by the Foreign sector on innovation, although this excludes inter-affiliate imports of Intellectual Property Products, go some way to explaining the productivity outcomes and growth in these Foreign-dominated sectors when compared to the Domestic and Other sectors.

[1] This spending only captures spending in the domestic economy on Innovation and excludes the inter-affiliate imports of intellectual property.

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Total Innovation Expenditure in the Manufacturing sector amounted to €2.3bn in 2018, with foreign firms spending on average twice as much as Irish firms on innovation. Over 60% of the total spend on In-house R&D and the Purchase of R&D came from Foreign companies.  Foreign companies accounted for 78% of the total spend on the Acquisition of Machinery, Software and 90% of the Acquisition of External Knowledge. The only element of innovation expenditure where the majority of spending was by Irish firms was Other Innovation Activities, which is composed of money spent on the development of new or significantly improved products and processes.

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Total Innovation Expenditure in Wholesale and Retail and Transport amounted to €534 million with the expenditure of Foreign firms accounting for 73% of this figure. Spending on In-house R&D and the Acquisition of External Knowledge was dominated by Foreign firms, with close to 90% of the total spend on these two activities coming from Foreign firms. Unlike in the Manufacturing sector, the total expenditure on External R&D and the Acquisition of Machinery,Equipment and Software is split evenly between both Foreign and Domestic firms.

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Total Innovation Expenditure in the ICT sector was €1.6 bn in 2018 with 76% of spending by Foreign firms with the remainder by Domestic firms. Interestingly, Irish firms spent more than Foreign firms on the Acquisition of Machinery and Equipment, with 60% of expenditure on this activity being attributed to Irish companies. In-house R&D spending and the Acquisition of External Knowledge is largely explained by Foreign firms. 

The dominance of Foreign firms when it comes to expenditure on innovation can be seen in the productivity results, however caution is advised as the results for this Foreign-dominated industry are leveraged off large inter-affiliate IPP imports which are not included in this analysis. Nevertheless, in recent years, ICT has been one of the best performing industries, with very strong results for MFP, Labour Productivity and GVA growth in 2018.

Source Publication: Business Expenditure on Research and Development 2019-2020

The final chart compares the R&D activity across EU member states. R&D intensity as presented above is defined as the ratio of R&D expenditure to GDP and refers to 2017 for which the most recent comparable data are available. The R&D intensity for Ireland in 2017 was 0.92%, which was below the EU 28 average of 1.39%.  The majority of countries in the lower end of the distribution are Eastern European countries, while the Nordic and mainly Western European countries populate the top of the distribution. Using GNI* instead of GDP would increase the R&D intensity ratio to 1.5% in 2017 and may better reflect the Irish position.