UNIVERSITÀ DEGLI STUDI DI PALERMO
FACULTY OF ENGINEERING
CASE STUDY OF R&D DEVELOPMENT IN LITHUANIA
PALERMO 2023
CONTENT
CONTENT ................................................................................................................................ 2
LIST OF FIGURES .................................................................................................................. 3
INTRODUCTION .................................................................................................................... 4
1.
2.
R&D EFFECTS WORK MARKET INDICATORS PROBLEMATICS ................... 5
1.1.
R&D & JOB CREATION. .............................................................................................................................. 5
1.2.
R&D AND WAGES. .................................................................................................................................... 6
1.3.
R&D AND WORK PRODUCTIVITY .................................................................................................................. 6
LITHUANIAN R&D EXPENDITURE FINANCING .................................................. 6
2.1.
GENERAL INFORMATION ABOUT LITHUANIA .................................................................................................... 6
2.2.
POLICY SUPPORT FOR BUSINESS R&D BY TAX RELIEF ......................................................................................... 7
2.3.
TRENDS IN GOVERNMENT SUPPORT FOR BUSINESS R&D.................................................................................... 9
2.4.
EU FUNDS.............................................................................................................................................. 10
3.
SPECIALISTS ................................................................................................................ 12
4.
LITHUANIAN R&D EXPENDITURE ANALYSIS ................................................... 14
4.1.
LITHUANIA R&D PART OF GDP EXPENDITURE ............................................................................................... 14
4.2.
EXPENDITURE OF R&D IN DIFFERENT SECTORS .............................................................................................. 15
4.3.
LITHUANIA AND EU AVERAGE EXPENDITURE COMPARISON ............................................................................... 16
5.
CONCLUSION ............................................................................................................... 17
6.
REFERENCES ............................................................................................................... 18
LIST OF FIGURES
1 Figure.
Exclusively technologically advanced countries R&D expenses + China ............. 4
2 Figure.
General information about lithuania ....................................................................... 6
3 Figure.
Number of R&D tax relief recipients and value of government tax relief for R&D,
2019 By industry, share in percent. ............................................................................................ 7
4 Figure.
Number of R&D tax relief recipients and value of government tax relief for R&D,
2019 By firm size and share in percent. ..................................................................................... 8
5 Figure.
Direct funding of business R&D and tax incentives for R&D, Lithuania, 2000-19
As a percentage of GDP, 2015 prices (right-hand scale) ........................................................... 9
6 Figure.
As ................................................................ Ошибка! Закладка не определена.
7 Figure.
R&D Staff number 2017-2021 m. ........................................................................ 12
8 Figure. ................................................................................................................................... 13
9 Figure.
10 Figure.
Lithuania R&D part of GDP expenditure dynamics 2009–2020m., Percent. ...... 14
R&D expenditure in 2021 Lithuania an EU by sectors .................................... 15
INTRODUCTION
Scientific research and experimental development (R&D) states to achieve good
economic results. In a competitive way world companies invoke R&D, to set business
objectives in the process of creating better and more innovative products, improving operational
processes. European Union raised goal of research and experimental development expenditure.
Lisbon agenda has objective to reach expenditure on R&D to 3% of GDP, with two thirds of
this expenditure being made up of business expenses (European Commission, 2002). Research
and experimental development have great importance both in the private sector and in the
economy as a whole. The future economic progress of any country is determined by the
invention and application of new technologies. By absorving figure 1. we can understand that
spending on research and experimental development is one of the main categories of
expenditure in countries that promotes the development and introduction of innovative
technologies, which, in turn, promotes an increase in productivity and the growth of the
economy.
1 Figure. Exclusively technologically advanced countries R&D expenses + China
1. R&D Effects Work Market Indicators problematics
The impact of innovation on job creation in the scientific literature Studied in two
aspects: Impact of innovation on Product or Impact of innovation. on Process. According to
Edquist (2001), the extent of the new jobs created depends on market growth, the level of
demand, as well as other subsets of the economic system. Product innovation, which neither
replaces an existing product nor process is the creation of a completely new product, has the
greatest positive impact on job creation. Bogliacin (2011) study found that R&D costs effect
employment growth and makes different effects on separate economic sectors. He found that
expenditure R&D increases employment in the service and high-tech manufacturing sectors,
but in traditional manufacturing sectors, there is no positive impact on employment rates.
1.1.
R&D & job creation.
The impact of innovations on job creation has also been analysed by Lithuanian
scientists. Valentinavičius (1999; 2001) the conclusion of the study is that technological
progress has an impact on jobs in two dimensions: technological progress contributes to the
growth of labor and capital productivity (increases overall productivity level); on the other
hand, promotes technological innovation creation and so saves resources. According to the
author, technological progress and creation of innovations stimulate production expansion or
entry into new markets which creates new jobs. Valentinavičius (2001) stresses the impact of
innovation on job creation is determined by various socio-economic factors: the structure of the
market for goods and services, the existing labor market, the chosen business model and its
barriers to financing, the legal and legislative environment, the competitive environment, and
the application of innovation. Scientist observed that industry sectors and plants in those who
apply innovation medium period creates a larger number of new jobs. However in long period
R&D activities and innovation in industrial sectors can lead to job losses (Valentinavičius,
2001).
1.2.
R&D and wages.
According to Valentinavičius (2001) the development of innovations leads not only to
an increase in value added, but also to an increased demand for labor, which, in turn, leads to
higher gross wages. Increase in the wage gap is due to the growth in demand for a skilled
workforce precisely because of the shortage of these workers in the labor market.
1.3.
R&D and Work productivity
By Valentinavičius (2001) and Segarra-Blasco (2010), investment in research and
development to develop new products has a positive effect labor productivity. According to
research by scientists, labor productivity was directly influenced by product innovation.
According to Valentinavičius (2001), the highest productivity is observed in those countries
with the highest expenditure on R&D activities, per capita per employee. Overall, R&D is
considered to be an important factor in productivity growth, but the cost and effectiveness of
R&D can vary depending on the industry and the specific product being developed.
2. Lithuanian R&D financing
2.1.
General information about lithuania
Lithuania is a developed country, with a high income advanced economy; ranking 35th
in the Human Development Index of all World countries. Lithuania is a member of the
European Union, the Council of Europe, eurozone, the Nordic Investment Bank, Schengen
Agreement, NATO and OECD. It also participates in the Nordic-Baltic Eight (NB8) regional
co-operation format.
The GINI index is a measure of income inequality, and Lithuania's GINI index was
35.30% in 2019 according to the World Bank estimate where EU average was 30.1%.
Lithuania's GDP per capita was 23,723 Eu in 2021. According to World Data,
Lithuania's GDP per capita is lower than the European Union average wich was 32,828 Eu.
Lithuania's GDP has almost doubled in size since 2000 (2 Figure).
Lithuania
Comparison with EU-25
Population, 2021 (mil.):
2.8
0.6% of population in EU-25
Gini index:
35.1 %
30.1 % in EU-25
Human Development Index
0.875
0.896 EU-25
GDP/capita, 2021 :
23,723Eu
32,828 Eu or 61% of GDP/capita in EU-25
2 Figure. General information about Lithuania
2.2.
Who is financing R&D in Lithuania?
R&D in Lithuania is mainly financed by the Innovation Agency of Lithuania and European
funds. In addition, Lithuanian businesses may apply for support from five finance programs.
The Research Council of Lithuania supports Lithuanian organizations interested in international
collaboration and provides access to expertise and funding for R&D projects. The Open R&D
Lithuania platform connects 12 Lithuanian universities, 13 public research institutes, and 7
science and technology parks to provide R&D services and solutions. Overall, Lithuania offers
various programs and incentives to support R&D, with a focus on collaboration and innovation.
2.3.
Policy support for business R&D by tax relief
In 2019, Lithuania is placed among the lower tier of OECD (Organisation for Economic
Co-operation and Development) and partner economies in terms of total government support to
business R&D as a percentage of GDP. The distribution of R&D tax relief recipients and
government tax relief for R&D expenditures provide insights into what types of firms claim
and benefit from tax relief (3,4 Figure).
3 Figure. Number of R&D tax relief recipients , 2019 By industry, share in percent.
4 Figure. Value of government tax relief for R&D, 2019 By firm size and share in percent.
Key points:

In 2019, firms in services represented around 68% of R&D tax relief recipients in Lithuania,
followed by firms in manufacturing with a share of 28%. The share of R&D tax benefits
accounted for by the latter amounted to 35% in that year, while this share amounted to 62%
in the case of firms in services.

In Lithuania, SMEs accounted for 98% of R&D tax relief recipients in 2019, while the share
of R&D tax support accounted for by SMEs amounted to around 88% in this year. 12% of
R&D tax benefits were allocated to large firms, comprising 2% of the population of R&D
tax relief recipients in 2019.
2.4.
Trends in government support for business R&D
Since the introduction of an R&D tax allowance in 2008, the importance of R&D tax
incentives has increased in Lithuania, both in absolute and relative terms.
5 Figure. Direct funding of business R&D and tax incentives for R&D, Lithuania, 200019 As a percentage of GDP, 2015 prices (right-hand scale)
According to the OECD, R&D tax incentives accounted for 83% of total government
support for BERD (business expenditure on R&D) in Lithuania in 2019 (5 Figure). A report by
the OECD also provides insights on trends in business R&D performance and funding in
various countries, including Lithuania.
Key points:

The cost of government tax relief for R&D rose (in 2015 prices) from EUR 2 million in 2008
to 11 million in 2019. It experienced a sharp increase in 2009 and an immediate decline in
2010, following changes in the CIT rate, and a marked increase again starting in 2013.

As percentage of GDP, R&D tax support increased from 0.006% to 0.03% of GDP during
2008-19. The share of tax incentives in total government support increased from 51% in
2008 to 83% in 2019.
2.5.
EU funds
Lithuania receives EU funds to finance various programs and projects, including
research and development. According to the European Union's member country profile of
Lithuania, the money paid into the EU budget by Lithuania helps fund programs and projects
in all EU countries. The EU budget is used to finance EU funding programs such as the
European Regional Development Fund, the Cohesion Fund, Horizon Europe, and Erasmus+2.
The Lithuanian Ministry of Economy has opened calls for the implementation of the Structural
funds of the European Union for direct support for business development in Lithuania.
Assessing 2014-2024 EU fund allocation priorities (6 Figure) we can absorve that research and
development is one of most funded sections of overall fund wich consists of 10.1% or €678,88
million.
6 Figure. Priority axes and allocations under the 2014-2020 in million Eu
Over 2014–2020years, more than 150,000 participants — including research institutes,
companies and individual scientists — have collectively received almost €60 billion in research
funding programme – Horizon 2020. Projects completed by December 2020 produced almost
100,000 peer-reviewed publications and around 2,500 patent applications and trademarks.
7 Figure. Horizon 2020 funding allocation diagrame
Despite efforts to strengthen research in eastern Europe, there persists a distinct east–west
divide in the European research landscape. Scientists and research institutions in Poland,
Slovakia, Bulgaria, Lithuania and Romania were among the least successful participants in
Horizon 2020, securing a combined total of just over €1 billion.
“The main reason is that the level of national research funding in eastern European countries
is relatively low,” says Janusz Bujnicki, a bioinformatician at the International Institute of
Molecular and Cell Biology in Warsaw and former member of a high-level group of scientific
advisers to the European Commission. Researchers in the region are also less well integrated
into informal networks of research consortia that compete successfully for EU grants, he says.
3. Specialists
R&D specialists are the driving force behind R&D activity, and therefore appropriate
review on this area employees number dynamics in Lithuania. Lithuanian R&D working in the
annual change in the number of people 2017–2021 m. submitted in Figure 9.
26500
26199
26098
26000
25500
25000
24591
24699
24500
24000
23773
23500
23000
22500
2017
2018
2019
2020
2021
Lithuania
8 Figure. R&D Staff number 2017-2021 m.
Examining the figure, we can see that over the past year the number of R&D workers
has slightly decreased, but if we observe the trend since 2017, we can see about 10 percent.
increase in employees. There are several reasons why the number of R&D specialists in
Lithuania is reacently declined. According to the European Commission's Country Review of
Lithuania, the number of R&D personnel working in business is low. Additionally, the
comparative expert assessment of R&D activities in Lithuania found that the number of R&D
projects and the amount of funds for R&D activities are declining.
Examinating the dynamics of the number of R&D personnel and researchers from another
point of view – these employees part of the number from the total number of employed persons.
2008–2018 m. period R&D Staff and researchers the share of the total number of employed had
a tendency to grow ( Figure 10.).
1,78
1,77
1,77
1,76
1,74
1,72
1,7
1,68
1,68
2018
2019
1,68
1,66
1,64
1,62
2020
2021
Series 1
9 Figure. R&D employees part of the number from the total number of employed persons
in Lithuania.
Number of employees working in R&D may reflect the extent of R&D in the country, since
such staff directly related with R&D projects execution. R&D employees structure by
institutional sector can reflect each sector contribution at R&D. For this reason examining the
performance of countries in innovative activities in terms of the number of R&D staff, it is
appropriate to review R&D staff and Researchers number structure by sector. This structure
provided in Figure 11.
1,2
1
31,00%
0,8
60,00%
15%
0,6
0,4
12%
54%
0,2
27%
0
Lithuania
Higher education sector
10 Figure.
Government sector
EU average
Business enterprise sector
Private non-profit sector
R&D Staff and Researchers Number structure by sector 2021 m.,
According to the European Commission's Country Review of Lithuania, the number of
R&D personnel working in business is low. The Lithuania Corporate R&D Report 2016 also
highlights that quite a low number of applicants have applied for R&D incentives, with the
main reason being a shortage of available information on R&D grants and incentives. The report
also notes that Lithuanian companies treat their R&D activities in a straight forward manner,
and do not expect to make any decrease in their overall spending on R&D in the short-tomedium term (up to five years). Therefore, the lack of employees of R&D in the business sector
in Lithuania could be due to a lack of awareness of R&D grants and incentives, as well as a
straightforward approach to R&D activities.
4. Lithuanian R&D expenditure analysis
Most analysed indicator describing country R&D activity scale are expenditure research
and development of GDP. Spending on R&D to promote the development of innovation can
bring benefits both for businesses – reducing costs, improving products or the quality of
services, increase the workforce productivity and profits.
4.1.
Lithuania R&D part of GDP expenditure
The share of R&D expenditure of the Lithuania on GDP dynamics 2008-2018 submitted
in 12 Figure.
2,5
2
1,5
1
0,5
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Research Expenditure of GDP: %
11 Figure.
EU average
Lithuania R&D part of GDP expenditure dynamics 2009–2020m.,
Percent.
After analysing the dynamics of R&D expenditures in Lithuania on GDP, it was found
that Lithuania indicator remained stable with slight increase of total research expenditure.
Comparing Lithuanias R&D expenditure with EU average we can see big gap of more then one
percent where on average EU was spending 2.2 percent of GDP and Lithuania was spending
1.16 percent of GDP.
4.2.
Expenditure of R&D in different sectors
Countries governments participation in R&D are extremely important. In markets exists
insufficientum due to lower private returns from R&D compared to social returns. In addition,
a large R&D risk for failed investment deterrent business companies from R&D costs.
Therefore, when examining R&D expenditure, it is important to review the proportion of such
expenditure in each institutional sector expenditure separately.
Expenditure of the higher education sector in R&D accounted for a - 35% in Lithuania,
the largest share of R&D expenditure was accounted for by business sector expenditure - 49%
and general government expenditure counted for – 16 %. In Lithuania general goverment
expenditure in total R&D expenditure was a similar share of EU, while expenditure in business
sector was 17 % below EU average, and expenditure in higher education sector was 13 % above
(13 Figure).
1,2
1
0%
0,8
35%
1%
22%
11%
0,6
16%
0,4
66%
49%
0,2
0
Lithuania
EU
Business sector expenditure
General government
Expenditure of the higher education sector
Privat non-profit
12 Figure.
R&D expenditure in 2021 Lithuania an EU by sectors
4.3.
Lithuania and EU average expenditure comparison
According to Lithuanian Statistics Department only 1.05 percent all business enterprises
invest in R&D and are considered science intensive. Based on the 2020 data, expenditure on
R&D activities, compared to GDP, amounted to only 1.16 percent. In strategic Lithuanian
documents it is stated that in 2030 R&D expenditure compared to GDP will reach 2.2 percent.
As indicated in economic transformation and competitiveness development program
2022-2030, business sector expenditure in 2019 was 3.4 times below EU average and
contributed 0.43 percent of GDP compared to 1.46 percent. GDP across the EU, and this means
that most of businesses apart from a few sectors (lasers, biotechnology) is still not able to invest
in R&D.
Lithuanian investment in R&D does not reach the EU average and it is one of the lowest
indicators of private investment at the EU level. Moreover, European innovation data show that
the export level of knowledge-intensive services in Lithuania in 2021 seeks only 4.4 percent of
EU average and medium and high-tech products seeks only 57.9 percent of EU average. One
of the reasons for this is the lack of synergies between the business and scientific sectors
proactiveness also number of R&D-intensive Lithuanian companies is small.
5. Conclusion

Based on the research results, it is clear that Lithuania needs to increase the number of R&D
personnel in the business sector. The European Commission's Country Review of Lithuania
notes that the number of R&D personnel working in business is low. The Lithuania Corporate
R&D Report highlights that quite a low number of applicants have applied for R&D incentives,
with the main reason being a shortage of available information on R&D grants and incentives.
However, the Lithuania Corporate R&D Report shows that a number of Lithuanian enterprises
are investing in R&D projects and activities by greater amounts, and the number of employees
involved in R&D is growing at a fast pace of 24% a year on average. Therefore, while there are
some positive signs, Lithuania needs to continue to encourage more businesses to invest in
R&D and provide more information on R&D grants and incentives to increase the number of
R&D personnel in the business sector.

Based on the research results, it is assesed that Lithuania needs to increase its expenditure on
R&D in the business sector. The Lithuania Corporate R&D Report highlights that Lithuanian
companies do not directly relate their future R&D expenditure to the availability of cash grants
and tax incentives. However, the Lithuania Corporate R&D Report 2016 shows that a number
of Lithuanian enterprises are investing in R&D projects and activities by greater amounts. The
OECD R&D Tax Incentives. Therefore, while there are some positive signs, Lithuania needs to
continue to encourage more businesses to invest in R&D and provide more information on
R&D grants and incentives to increase the expenditure of R&D in the business sector.
6. References
https://www.nature.com/articles/d41586-020-03598-2
https://2014.esinvesticijos.lt/en/priorities-and-finances
https://2014.esinvesticijos.lt/en/
https://www.oecd.org/sti/rd-tax-stats-lithuania.pdf