Economic Theory

The Deep Tech Index: identifying technology clusters and their determinants

Around the world, governments strive to encourage the development of technologically advanced firms. The reason is that firms with advanced technologies usually contribute to export revenues and play an important role in job creation. The recently launched Deep Tech Index studies the 500 leading technology firms in the world, mapping which urban regions and countries these firms operate in. The index also studies what characterises those countries which have a higher share of globally leading deep tech companies per million adults. Those countries which succeed tend to have lower taxes, stronger private property protection, and better education outcomes.

The index, produced by the European Centre for Entrepreneurship and Policy Reform (ECEPR) with support from Nordic Capital, maps the leading deep technology centres, focusing on key, future-shaping technologies. Through the study, the leading companies in artificial intelligence, greentech, cleantech, biotech, as well as photonics and electronics are studied. The report focuses also on robotics, computers and quantum computers, pharmaceuticals, fintech, as well as space and advanced materials. These are ten areas of advanced technology, which all have significant impact on long-term societal development. For example, artificial intelligence is used more and more by businesses as well as private individuals. Another example is that advances in biotech allow for rejuvenation and prolonged life span.

Countries that have a lower total tax burden, as share of total economic activity, tend to have more world leading deep tech companies per million adults. An explanation may be that high taxes crowd out private sector activity. “High taxes crowd out development of technology, since they reduce the incentives for individuals, firms and investors. Striving towards lowering the tax burden, can be a constructive step for particularly European nations to strengthen their deep tech sectors”, said Dr Nima Sanandaji, Director at ECEPR and author of the report.

Additionally, those countries that have more world leading universities in engineering and technology succeed better in deep tech. The highest share of deep tech companies per million adults is found in Israel, followed by the US, Ireland, Estonia, Switzerland, Denmark, Canada, Sweden, the Netherlands, and the UK. Outside of the USA, many of the leading deep tech centers of progress are found in Europe. This includes London, Paris, Amsterdam, Berlin, Stockholm, and Dublin. Asia already is strong in deep tech, with future growth. Asian cities with a strong presence in deep tech development include New Delhi, Tokyo, Bengaluru, and Beijing.

Technology is an important part of the modern business landscape. Technology is expensive and specialised, often much of what is produced is exported. By creating prosperity, the technologically advanced companies directly and indirectly play a role in job creation.


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