Macro-economic consequences of European research policy: Prospects of the Nemesis model in the year 2030

Abstract

Acknowledging the weakness of R&D expenditure in Europe relative to that in the United States and Japan, Barcelona's European Council agreed in March 2002 to increase investment in R&D to 3% of GDP by 2010. The aim of this paper is to assess the macro-economic consequences of such a policy, using the European macro-econometric model Nemesis. Results show that macro-economic trends can be split into two distinct phases. In the first one, growth is directly driven by R&D expenditures, while in the second phase, innovation is the engine of growth through productivity and competitiveness gains.