Economic impact modelling of smart specialization policy

In this paper we argue that it is necessary to apply economic impact models in smart specialization policy in order to come up with reliable economic impact estimations. Solutions suggested in the smart specialization (S3) literature for economic impact assessments cover the economic effects only partially. To estimate the impacts in the industrial, regional and national dimensions in their entirety the application of specifically designed economic models becomes necessary. We extended the geographic macro and regional (GMR)-Hungary policy impact model with additional features to make this model applicable for S3 economic impact estimations. In our policy simulations we illustrate how the application of this model helps policy-makers in the prioritization process. En este artículo se sostiene que es necesario aplicar modelos de impacto económico en las políticas de especialización inteligente a fin de obtener estimaciones fiables del impacto económico. Las soluciones sugeridas en la literatura sobre especialización inteligente (S3, por sus siglas en inglés) para las evaluaciones del impacto económico solo incluyen parcialmente los efectos económicos. Para estimar en su totalidad los impactos en las dimensiones industrial, regional y nacional se hace necesaria la aplicación de modelos económicos diseñados específicamente para ello. Se amplió el modelo de impacto de la política geográfica macro y regional (GMR) de Hungría con características adicionales para poder aplicar este modelo a las estimaciones de impacto económico de las soluciones para la especialización inteligente. En nuestras simulaciones de políticas se ilustra cómo ayuda la aplicación de este modelo a los responsables políticos en el proceso de asignación de prioridades. 本稿では、信頼性のある経済的影響評価を得るためには、スマート・スペシャリゼーション政策に経済的影響モデルを適用する必要があることを論じる。経済的影響評価のためのスマート・スペシャリゼーション(S3)の研究論文で提言されている解決策は、経済効果に対して部分的にしか対応していない。産業、地域、国の次元で全体の影響を評価するには、特異的にデザインされた経済モデルを適用することが必要となる。地理的マクロと地域(GMR)-ハンガリー政策影響モデルをS3経済影響評価に適用できるように機能を追加して拡張した。政策シミュレーションを行い、このモデルの適用により、政策立案者が優先順位付けのプロセスにおいてどのように支援されるかを示した。 Smart specialization (S3) is an innovation-based regional economic development policy (Foray, 2015, 2019; McCann & Ortega-Argilés, 2015). S3 targets the industrial restructuring of regions based on the support of promising new activities (technologies, inventions) that are rooted in the regions' own knowledge bases. Smart specialization became integrated in the EU cohesion policy framework as a pre-requisite for the eligibility of ERDF (European Regional Development Fund) financial support. Nevertheless, smart specialization is not exclusively a European policy. It has also been initiated and implemented in China as well as in the United States (Anastasopoulos, Bröchler, & Louis Kalentzis, 2017; Radosevic, Curaj, Gheorghiu, Andreescu, & Wade, 2017). Smart specialization policy is a unique mixture of bottom-up and top down elements. Entrepreneurial search as a bottom-up process results in a set of local initiatives by regional stakeholders (like entrepreneurs, public research institutions, universities) that form the basis of those activities that will eventually be selected by the government for support. The selection mechanism—called prioritization—is a key component of smart specialization policy. During the selection process, the proposed new activities (technologies, inventions) are analysed by the government with respect to different dimensions such as their uniqueness or their likely economic significance. S3 targets industrial restructuring and growth, therefore it is crucial to understand its economic effects (like its impacts on regional GDP or employment) for policy design and evaluation. Estimation of each suggested activity's economic impacts during prioritization helps policy-makers to select from available alternatives. Also, understanding the economic effects by ex post impact evaluations significantly increases the effectiveness of policy learning. However, despite its key importance, economic impact estimation has not yet become integrated into the framework of smart specialization policy (Varga, Sebestyén, Szabó, & Szerb, 2020). Economic impact estimation is an integral part of large-scale policies and has also been an essential element of EU cohesion policy traditionally. Economic effects of policies are usually estimated by policy impact models which calculate the economic impacts of policy interventions such as investment supports, human capital development or R&D subsidies at the regional, national or supra-national (like EU) levels (Brandsma & Kancs, 2015; Ratto, Roeger, & in't Veld, 2009; Varga, 2017). Economy-wide effects emanate from various linkages that the actors directly supported by the policy have with several other actors in the economy. These impacts are most typically channelled by input–output relations with suppliers and buyers, by income multipliers or by knowledge spillovers. The impacts are usually calculated on several economic variables like the output (GDP), employment, wages, or the price level. Understanding economic effects is important in the policy design phase (ex-ante impact assessment) as well as in the evaluation stage (ex post impact evaluation). Experiences in the implementation of smart specialization policy in many European regions suggest that knowledge about the economic effects of S3 would significantly increase policy success both in the policy design and in the policy execution phases. Capello and Kroll (2016) point out that many of the less advanced regions are hardly capable of selecting those priorities that are most compatible with their economic is supported by that despite the in European the of the set of policies to be In this are regions in the of by and regions in the and of the and to be less & 2019; 2017; & McCann & Ortega-Argilés, of has been in the in order to the of of are to the support of smart specialization a to search for economic or new for the selection of priorities The suggested by and and de and the to economic impact However, the paper by on and and not cover economic effects and the not impacts of a smart specialization policy. the of the geographic macro and regional economic impact Varga, Sebestyén, Szabó, and for impact estimation of and the which in the of paper economic impact the framework of smart specialization policy. The of economic impact estimation in S3 policy design and evaluation is in those the of smart specialization down (Foray, 2015; & Nevertheless, with the suggested only a of the economic impacts be into designed economic impact models the to down the of many that the success of different development policies in regional However, to the impact estimation of smart specialization policy with economic to several the paper the of economic impact models for S3 impact the application of the of the policy impact model we illustrate the of economic impact estimation in economic impact the of smart specialization by that the policy impact model is in for impact in the prioritization phase of and the The suggested for S3 economic impact has not this in to economic impacts employment, and of an industrial are to and from both the and public economic impacts with the which be from regional input–output However, linkages cover economic impacts only out other (like effects and the impacts of in or from the & of a evaluation of economic impacts of for the development of which are to and economic activities a in a economic paper that with the application of specifically economic impact models the estimation of impacts becomes are the most important economic impacts initiated by the support of the of a new or an into local and input–output and linkages are crucial in the impacts of support. that are in the local their and are to the in in of economic linkages will be the impact will into the local and national the linkages of other by the the of a new increase investment as a of local The additional capital has a it as a of for the selected it is that the capital will be by as a of an income it will increase and and government are also to for public which However, it to the of local growth, it has to be that each component be by the of other regions as well to a local less in other will local and other in of economic from national regions are also to by local increase as which be the of and has also a key in the of each a of a additional is in the which increases the of of in the The of a new therefore a of in regional and national To the effects of development economic models have been in impact estimation as in the evaluations of the EU cohesion economic impact to be a for S3 impact estimation as However, several economic impact has not yet its in the framework of smart specialization policy. The from the that S3 is not a policy (Foray, 2015). Economic models most in cohesion policy impact evaluation estimate effects of policies investment or R&D the industrial the S3 targets the development of industrial on the basis of regional the effects is a a of a new that be a new or other inventions) at the industrial to be in a macro impact economic models in S3 impact the industrial in their The is to the of S3 that it is a regional development policy. the models to several geographic dimensions that significantly the economic impacts of smart specialization policy. such and effects be part of the model in to and the of and capital models are of the to geographic effects & Kancs, 2015). The is to the that the also a in the policy and as such this also be integrated in the model is the regional effects of smart specialization policy are also by several initiated by the national government such as in or in the macro and models a to the macro and regional dimensions into economic impact estimation (Varga, 2017). The is with the impacts of of the policy interventions that specifically for smart the estimation of the economic impacts of (like human capital R&D subsidies or investment is a in impact the estimation of the effects of policy such as regional policy and development a Varga, Sebestyén, a for the impacts of and knowledge support in the of smart specialization policy. economic models to estimate the impacts of smart specialization policy to and knowledge in to human investment also have to the regional and and capital effects additional to the Also, to economic models most in cohesion policy impact models to be models the economic impacts of different development become at regional and and to economic impact models to a smart specialization The models support policy-makers with ex impact assessments to come up with in the prioritization also by the effects of various interventions or that industrial restructuring based on the of new evaluation is in the phase about which policy and how the policy to be as well as in the ex post evaluation phase estimate the impacts of the policy at the regional, national and at the supra-national The the most of the economic impact model the features to make it applicable for S3 economic impact To the in S3 economic impact will be in simulations in the of prioritization in is a economic impact It is regional the impact of development policies (like investment or R&D is at the of It is macro the of national policies is also into and it is geographic the model into its by and capital regional and knowledge spillovers. The has been to economic impact models for the European and for models have been to estimate the impacts of various regional development policies such as the effects of cohesion policy in and in European regions or the impacts of EU the that we to the economic impacts of support we the features of the a of the most important is the of the model The framework and in order to support development policy ex and ex post The framework on the of & or the the other it also for the geographic effects of different policy interventions for the of both regional and national impacts of The of into impact to for knowledge of and as well as or of on this or Varga, Sebestyén, In this we the of the models for which is a an of model and and and and (2016) and Varga, Sebestyén, a point of the of the is in each by a model a which in the of the of Varga, & & Varga, Varga, a rooted in the new economic & and a on in In the we is of the most important variables in the model for the effects of different policy interventions as R&D development human capital and knowledge development models the most important and their in regional The is based on the knowledge literature and the of new knowledge as a of knowledge like R&D knowledge that both at the regional and national In to of knowledge a of our is to other of knowledge which are important in smart specialization The is the knowledge available knowledge which we by the knowledge is to the effectiveness of R&D in the The is the of the in regional levels by the in the Entrepreneurial is to have with the of human capital in the the knowledge of & The is the component of the framework in of policy as it for the impact of policies of the knowledge The is capable of the impacts of different policy interventions on regional in is to the and which calculate the economic impacts of both at the regional and its the is a of estimated the and its key The of the are an model with estimated a process is implemented to of of the The the effects of policy on regional These impacts as for the model The is designed to the likely impacts of development policies to human knowledge and on regional economic variables like wages, employment, The most important of this is that it into economic regions such as the of and the linkages and the as well as of are for and and effects are into in this model as The model is is to the model by and capital and capital The model with In the we and In the in the levels and the of in as well as into and However, this not that the is in In the in levels on and of the in the and to in the levels and are this to a in the In the we the of the economic actors in the model and the most important In the model we the important actors in a investment and actors as well as their with by different are by and in is to the of by a both the and which is up of the of for government and Regional are to their We of the of of different and income is of and capital that regional capital is by income is to and In the of the of levels based on regional and the of an of in each regional an of a of are in the The capital is to be regions and with of of regional capital be by other regions' actors are to their capital to capital is its price is are in a that are by of the the government and actors of is as well as the of government is by the in a in and investment be are by and and government in each investment to a investment is by we for the most important of the government in a our be as we not for the government and the of economy. The government and this to make of and and other activities are for in such as and other and are not We down into and with The are on the basis of the input–output is by the The of is by and in the is a and are to be The price of and in the is by the which is to the of the of and also to be In of we up by investment and the or are the will to the of at its our model is not designed for of relations are in the model The of regions is a part of the actors of the economy. of and is to in its regional are to their to of the regions and and from These are by which are by many in the model the of local on most by which is to the to of and that in different regions are not for regional a actors make about the regional of their on the basis of their and the a model a of both at the regional and which is usually not available in are not by most crucial in such model is based on an estimated input–output for which we the of and the available regional and national in the national input–output The regions and the capital as well as in of the model based on our estimated in a that in the the of the the model the The of the framework as the and policies be and impacts of different interventions are In the of the of the is to government and on the basis of the national It is that the government will in order to an of the in the it and in order to the its level. In the the government a in a which is to the The of the is the or is or the government is the the on be in of The of to the is in a that the is in the is a the macro and the in the of we apply a model the as capital investment are for in the the of model the model the in regional which the to the in regional levels the of The how regional economic variables to as a of and regions and Economic effects of those policy that the model in the investment and public development are also by the of the and model In to in several economic variables (like employment, wages, in the regional and as an this the of which in the model the other in economic will have an impact on government in the calculated by the in of different public on the other the be by or a will have a investment which We for and capital In the in a of the are channelled to the regional for effects in knowledge of regional is which is channelled to the and the a of the each both regional and regional economic impacts are also in different policy interventions be at different levels of the model interventions R&D are in the investment are for in the macro policies are by the in government The and effects of interventions will the other model and the economic impacts are by the model with the of a our policy impact simulations are to the likely effects of a of policy into and a in the prioritization process is crucial to the of (Foray, 2015). activities are dimensions in the of the activity's its regional and the new activity's economic significance. The of the such as its of the to which it targets the of new for the the of of and regional of key (Foray, 2015). new be to the it not be in to The of therefore the of the to the process of by of a has the be in of its regional economic significance. a by the new would not in impacts on regional or GDP (Foray, 2015). The of evaluation targets its likely impact on the economy. To the of in prioritization in the we an framework will be in prioritization in the part of this of the only the and and economic become for economic as evaluation the activity's is out by of in the the of an to the of or that initiated by from the increases the of the activity's the other economic impacts the effects which the in to the of those activities are the of government support that and at the the basis of regional economic The to and economic In the S3 literature is with the of the industrial of the and the of the with other & 2009; & 2009; McCann & Ortega-Argilés, 2015). The the and of the the the of from the by in the We model from a on the basis of the the in the knowledge of industrial in the is by regional input–output for the input–output is supported by the of that and suppliers are the of for The of an industrial the the to which new knowledge in a to other in the To we apply the of a is that is to many other which are also to the of in the input–output the of the is to both the and the of the as suggested by respect to economic impact we apply the We that the of the to the government supported in the activity's support of an is to in of and the economic impacts GDP or employment) the in the of the However, the impacts in those dimensions will most by the application of this we are to select those S3 support In the selected both economic impact and regional it to knowledge is an that the of the which actors are and the of which and knowledge are These knowledge are to be important for and & also that different actors have different to knowledge to their in & & & Varga, of the most of this is how actors are is also a literature that different of the most of which is significantly to the of actors and & or In order to calculate as of regional we on the regions and the of the regional We the of input–output linkages as of the most important of knowledge and the of and output linkages by the element the in as the and in as the that this of is we the by the These are in which is both and as a for knowledge are calculated linkages that we of to the of is as the element is up the of the in are as the of the to the of and for is in the prioritization stage to the other we the application of a economic impact model in order to estimate the economic effects of the support of new activities that are to industrial In our we the effects of an investment support to in a We set the of the to of the regional capital we this investment support and based on the of the of EU by which is based on Economic impacts are as the of regional and in this the in regional effects of support In this we apply our framework to those S3 support of new activities is to in and economic The of simulations is to illustrate the of our we the to a set of The simulations are out for regions with significantly different economic and is the most of is a industrial and is a both impact and are to each of their regional in the In our simulations we the of regional economic in of an investment support. The economic effects are the of of different in the impact In we the most important of regional we that capital of is important in the of regional activities on activities regional in of in the capital of the to effects are a activities in the and capital activities in the from capital local linkages also how impact regional with and linkages are capable of to local are to economic effects be be of local that are on have less to regional the local additional income as the of the effects increase the of that different of In we the of the calculated in of each regional based on industrial we down the of to that regional specialization the most of the has of many financial knowledge is also in the and government is a in with linkages to the GDP is of the in in and in The specialization of a different We most of the activities as specialization to the local of a paper other is of the regions in GDP is only of the of the capital In the of specialization is only in a of These of the of and the to a local to a to of and capital of the is as a of is the capital of the calculated and economic impacts on the basis of the in and The the development of the economic with respect to the dimensions and economic the most promising would be those both and economic However, it is not for that regions have at like has a economic it many knowledge typically R&D and other most of activities are in knowledge and have less local and their economic impacts are such as and support and other The is also the and economic impact However, despite their levels of of the economic impacts such as financial We also that government which are in are in the their economic is less the other and are by not input–output These activities are their is to actors of the and and of the their most not levels of The of the are less and less in of economic impacts and is of the most regions in It is by in the of and is of the most in the the of the of of the are and the of the output is to However, are a local suppliers as a this in of the local economy. the other of its the of from industrial the is in the It that which on has in the local economic has less from the of the of the not a significantly different on our and economic impact we of with and economic the of and and and and and In to the economic less regions in of are activities and the of the are by this we the of in The of and are which is in with our this has a in we that the is an in we are less capable of key in to or the industrial which regional Nevertheless, other be in as well it is in be a in and are in the and have a economic significance. The analysed regions different in of that for smart specialization policy. new activities that the knowledge in the and in and the in to be the that have the in and economic Smart specialization policy targets industrial restructuring and economic growth, therefore understanding the economic effects of S3 is crucial for policy design and evaluation. its key importance, economic impact estimation is not yet part of smart specialization policy (Varga, Sebestyén, 2020). We a framework for economic impact estimation of smart specialization policy that be in the prioritization stage (ex impact in and in ex post impact evaluation. The model the features that make the model capable of out S3 economic impact estimations. In our policy we the framework suggested by for and economic significance. The is by the of industrial in the is as an important of regional restructuring have the regional which knowledge Economic is estimated with the of the policy impact simulations suggest that regions as have of for economic development many and knowledge are both and the other industrial regions as are by a of and not of the are capable of regional regions as are by and is in These are in with in smart specialization has been supported by the European and and by the European the and regional and and by the of the for and in the framework of the the of in the of of the of support from the of the to is

Economics · Geography · Macro · Prioritization · Regional science · Welfare economics · Computer Science · Economic Growth and Productivity · Regional Development and Policy · University-Industry-Government Innovation Models

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