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Research and Development in Israel: Successes and Challenges
Ohad Bar-Efrat
The full paper as a PDF file
Economic development is characterized by a process of extending knowledge and using such knowledge to increase economic growth and welfare. Research and development (R&D) not only creates new knowledge but also increases the ability to learn and the ability to use existing know-how. In this paper we examine Israel's standing in the world of knowledge creation, by tracking the registration of Israeli patents in the US. We have also identified obstacles and challenges facing Israeli companies in their future development of R&D.
Patent registration is an important source of information on R&D activities with direct economic value. Registering a patent waives the confidentiality of a new invention in return for obtaining exclusive rights to use the invention for a limited period of time. Registering a patent also allows for the pricing and trading of knowledge. Analyzing the number of Israeli patents registered in the US shows that in the past decade the number of Israeli patents registered in the US has doubled. In the period 1977 to 2004 Israelis registered more than 12,000 patents in the US, around 4,500 of them in the period 2001-04. The number of Israeli patents registered since 1977 places Israel as number 11 in the world in terms of patents registered in the US. A sign of the success of R&D in Israel in the past decade is that during this period the rate of growth in the number of Israeli patents registered in the US was higher than the rate of growth in the number of American patents registered. The research also shows that there is a clear and strong link between Israeli companies' R&D expenditure and the number of patents registered in the US.
The paper includes a specially commissioned survey of about 100 companies that conduct R&D and that have received state-funded assistance from the Chief Scientist. A major challenge faced by companies that carry out R&D is the shortage of professional workers; Some 60 percent of the companies carrying out R&D reported difficulties in recruiting professional staffers. The percentage of educated workers that work in R&D is particularly high, and it is possibly surprising that mobility of professional workers between companies is low.
A further major challenge for R&D is the problem of financing. Half of the companies in our survey reported funding problems as their major obstacle in creating new products. Given the size of Israeli companies--most are relatively small--most are not able to raise funds on the stock exchange either in Israel or overseas. Only one third of the companies that received state assistance from the Chief Scientist had access too to venture capital. The problem of funding is one facing older companies as well; Around half of the companies reporting financing difficulties were companies that were over 10 years old, though most were small and employed fewer than 50 staffers. Many successful companies also reported that they too had problems financing their R&D work. In this context, developing the capital market, through broadening it and deepening it, and developing financial instruments that supply the needs of the R&D sector, are all important factors in the future success of this sector.
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