(The) effect of R&D expenditure on productivity and innovation

Abstract

R&D expenditure is motivated by the desire to achieve economic growth. In previous research a positive relation between research and development and economic growth was found. When it comes to empirical research related to R&D and productivity growth we can distinguish three types of studies. First, country level studies related to the effect of R&D in countries economies. Second, industrial level studies related to the impact of R&D on certain industries, such as manufacturing or agriculture. Third, firm level studies related to R&D efforts and its impacts on the performance of companies and firms. This study focuses on the effect of R&D on country level using panel data analysis to find a correlation between total factor productivity and research and development expenditure. This paper includes data from developed and developing countries and includes income and regions dummies to check whether the performance in total factor productivity proves to be negative or positive depending on income level or regional characteristics.

Regarding the effect of R&D expenditure on innovation, this study focuses on Latin-America, it includes data from 1996 to 2011 and an input-output approach to determine if R&D expenditure leads to a higher degree of high-tech exports and patents creation and if it does, which sources of funds of R&D (government, higher education) are more significant.

Regarding R&D and productivity, results show there is a positive correlation between the growth of total factor productivity and R&D expenditure. Regarding R&D and innovation in Latin America, results show that government R&D expenditure has not been very effective in promoting high technology exports in Latin America, R&D in higher education institution proves to be more significant to increase high technology exports. On the other hand government R&D is positively related to the number of patents applications produced in the countries.