Frontier’s latest report, co-commissioned by The Department for Culture, Media and Sport and the Creative Industries Policy & Evidence Centre, has been published today. 

This report presents the results of new work to estimate the impact of the creative industries (CIs) on innovation and activity across the wider economy.

The CIs are a force for innovation in the UK. Firms in the CIs are considerably more likely to engage in innovation-generating activities and to have introduced product or process innovations than firms operating in other service sectors. Data from the UK Innovation Survey (UKIS) conducted by the Office for National Statistics (ONS) reveals that in 2021 36% of firms in the CIs reported having produced a product innovation over the past three years.

Anecdotal evidence supports the idea that the CIs generate knowledge ‘spillover’ benefits, i.e. that new ideas, innovations or processes created by creative industry firms are picked up by firms in other industries, improving those wider firms’ performance at little or no cost. The existence of such spillovers would imply that the knowledge and innovation generated by CIs is under-valued by the creative businesses themselves. This is important for policymakers, as it implies that creative innovation may be under-produced if creative businesses are left to their own devices.

In this report we quantify the impact of the CIs on wider firms’ innovation using the most recent data available, and add to the growing body of evidence that there are spillovers from the CIs that have a beneficial impact on the innovation of firms in the wider economy.

Key findings of the report:

• Firms in the wider economy that are more connected to the CIs are more likely to produce product innovations, and are more likely to produce novel product innovations that are new to the market, than firms that are less connected to the CIs.
• Firms that buy twice the average amount from the CIs (4% of their sales value rather than 2%), are 10% more likely to produce product innovations and 15% more likely to produce novel product innovations. Similarly, firms with twice the average proportion of hires that come from the CIs (6% rather than 3%), are 9% more likely to produce product innovations and 18% more likely to produce novel product innovations.
• We suggest that around half of this association is due to spillovers. For example, firms that buy from the CIs being influenced to be more innovative by their suppliers, while firms that recruit people from the CIs hiring people who bring with them either knowledge of innovations from the CIs or an innovative culture and way of thinking.
• Firms that are more connected to the CIs are more likely to achieve product and novel innovations both because they spend more on research and development and because they have a higher probability of successful innovation for the same R&D spend.

Policymakers may wish to consider ways to encourage connections between the CIs and wider firms so that the innovations and knowledge generated by the CIs can be enjoyed even more widely. Innovation vouchers enabling firms in other sectors to purchase services from CI firms are one such example that have been trialled in the past (Bakhshi et al., 2013; Design Council, 2008). Looking again at such ideas, or other ways to showcase the industry or increase knowledge exchange, could result in benefits that are felt across the economy.

The new empirical evidence in this report aligns with the earlier work of Bakhshi, and McVittie (2009), which also found that firms with greater connections to CI suppliers and CI customers are more likely to produce product innovations, and noted that this could be driven in significant part by knowledge spillovers. Frontier’s report updates the analysis to use the most recent data available, and investigates new spillover mechanisms including hiring from the creative industries, and the importance of local CI activity.

Please click here to read the full report.

For more information, please contact us on media@frontier-economics.com or at  +44 (0) 20 7031 7000.