The Economic Impact of Research and Development

Abstract

To increase economic growth and productivity, countries often invest in research and development (R&D). This is often an indicative of a country’s dedication to science and technology. The broader literature suggests that research and development expenditure positively impacts total factor productivity (TFP) by increasing output per worker. However, there are few studies that look at the impact of research and development on gross domestic product (GDP) per capita. Using a three-year time lag, this study attempted to uncover the relationship between research and development expenditure in 2008 to GDP per capita in 2011. Other factors, including the GINI index, gross savings rate, the unemployment rate, services as value added, industry as value added, and education expenditures in 2011 are also explicitly controlled in the study to isolate the impact of R&D on economic growth. Five ordinary least squares (OLS) models were used to understand how a one percent change in R&D expenditure can impact GDP per capita in both developed and developing countries. The empirical analysis found that R&D expenditure was statistically significant throughout the models tested, and other factors such as gross savings, industry as value added, and services as value added were significant at the one percent level. Ultimately, a positive relationship between GDP per capita in 2011 and R&D expenditures in 2008 was uncovered.