In order to achieve these objectives, the KBE strategy established a set of measures spanning four key areas (see Table 5.1.1). These measures sought to increase gross domestic expenditure on R&D (GERD) to 1.5 per cent of GDP by 2006. They also aimed to rebalance expenditure on research and development, seeking to shift the breakdown between the two from 90:10 to 60:40 by 2006. To increase the effectiveness of its RDI system, Estonia adopted location-based policies, creating science parks and regional business incubators. Lastly, Estonia used international cooperation not only as a means of attracting foreign knowledge and technology, but also as a way of building research teams with critical mass and avoiding “brain drain”.

The 2002-06 programme produced mixed results. In terms of R&D financing, GERD accounted for 1.13 per cent of GDP in 2006, below the target level. As a result of this shortfall in financing, national R&D programmes in selected key areas were not launched and financial support for graduate and postgraduate studies did not increase substantially. However, growth in corporate R&D outpaced growth in public-sector R&D. By 2006 the corporate sector accounted for 44 per cent of GERD, exceeding the target by some distance. Estonia was also successful in attracting foreign R&D investment, which grew from 13 to 16 per cent of GERD, higher than the EU average of 7 to 8 per cent. This was evidence of stronger links between Estonian RDI and the rest of the world.24

The KBE strategy for the period 2002-06 has been followed by similar strategies for the periods 2007-13 and 2014-20. A number of governmental and independent bodies have conducted assessments looking at the progress made under the first two strategies.

Each strategy has taken account of the experience and expert recommendations resulting from the preceding period and set more ambitious objectives, with targets increasing in number and scope (see Table 5.1.2). The key areas have been adjusted over time, but the overall priorities have not. The focus continues to be on ICT, health technology and services, and more efficient use of resources.25

This “systemic” approach to innovation policy has produced results. In 2012 Estonia’s GERD stood at 2.2 per cent of GDP (higher than the average across the EU-15). Meanwhile, the percentage of GERD accounted for by the corporate sector had risen further to stand at 57 per cent, approaching the EU-15 average (see Charts 5.1.2 and 5.1.3). Estonia was also one of the few EU countries that broadly maintained the same level of spending on public R&D during the crisis. In both Latvia and Lithuania, on the other hand, government-financed GERD declined as a percentage of GDP during this period.

Improvements can also be seen in terms of scientific and innovation output (see Chart 5.1.4). Estonia still lags some way behind Finland when it comes to patent applications, but it is catching up in terms of published articles. Moreover, in 2010 similar percentages of Estonian and Finnish firms introduced product or process innovations. Meanwhile, Latvia and Lithuania both trail behind Estonia for all indicators of R&D spending and output.