A Profile of Research and Development and Innovation in the Tasmanian Economy: Report for the Department of Innovation, Industry, Science and Research

The origins of policies that support business R&D can be traced back to economic theories in the new growth or endogenous growth tradition, which view new knowledge as a source of economic growth. Interest in quantifying the contribution of knowledge to growth led to the development of the OECD Frascati Manual in 1962. The manual provided an agreed conceptual framework for standardised statistical measurement of R&D, and following its wider adoption by member countries in 1963 the availability ofharmonised cross country datasets on R&D increased. This resulted in a range of empirical economic studies, many of which indicated that industry and economy wide output increases attributable to R&D inputs were significant, with spillover returns from R&D investment found to be larger than private returns. Thus firm investments in the production of new knowledge create an externality issue as firms are unable to appropriate all of their investments in R&D, leading to spillovers in benefits to other firms. Although this is of benefit to society, this type of market failure can lead firms to under invest in R&D. Thus R&D tax concessions were implemented to address the market failure, shifting some of the risks to government by creating added incentives for R&D investment.