Boosting Austria's Innovation Performance

Enhancing growth through more innovation has become a priority for Austrian policy makers in linewith European policies as laid down in the Lisbon Agenda. This paper discusses Austria’s innovationperformance, its innovation policies, and general framework conditions for innovation and growth. Austriahas increased its R&ampD spending as a share of GDP over the last ten years, largely reflecting more businessR&ampD, and aims at increasing it further to 3% of GDP by 2010. Innovation activity as measured by outputindicators has also improved in various fields, including the number of innovating SMEs. Furthermore,policy instruments and institutions have been improved and a culture of policy evaluation is developing.However, the paper identifies some weaknesses, particularly in general economic framework conditions,which may limit the creation and diffusion of innovation and productivity growth. It suggests focusingmore on these framework conditions, notably by strengthening competition in non-manufacturing productmarkets, such as retail and professional services, reducing the cost of firm creation and improving humancapital. It also argues that focusing on a numerical target for R&ampD spending as an end in itself is veryunlikely to be cost effective. With its university reform in 2002, Austria has made a major step inimproving the efficiency of tertiary education but more needs to be done.