Spain faced with the challenge of NGEU funds: last train for R&D?

This report evaluates the state of R&D in Spain and anaylzes the factors that hinder innovation. The implementation of the necessary reforms is essential for Spain to achieve its R&D objectives and increase its potential growth.

Key points

• Key points:
• Spain is very far from the European average in R&D spending, especially in the private sector, and shows significant territorial heterogeneity.
• The main factors that hinder Spain's performance in innovation are of three types: 1) the structural characteristics of our business ecosystem and the labor market, 2) the infectivity of the public sector in encouraging R&D in the private sector, and 3 ) other singularities of the Spanish economy, such as the scarce collaboration and transfer of knowledge between firms; a business ownership structure and financing framework that is not conducive to innovation; and important deficiencies in the training of employers and workers.
• Firms with fewer employees have more difficulties to contribute in R&D. If Spain had the distribution by size of firms in Germany, private spending on R&D would be double that of today. For its part, a sectoral composition such as that of Germany would increase R&D spending by 38%.
• The NGEU funds represent a unique opportunity for Spain to achieve its R&D objectives and to address the ecological and digital transformation. To do this, the disbursement of aid must be accompanied by reforms that deal with the structural imbalances that hinder innovation. If not, the effect on the economy will be transitory and may put our neighbors' confidence at risk at a crucial time for European integration.

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