Driving Factors for R&D Intensity: Evidence from Global and Income-Level Panels

Abstract

Research and development (R&D) has long been recognized as an important component of sustainable development, with a key role in the combatting of climate change. Moreover, R&D activity is increasingly acknowledged as an important contributing factor to global post-pandemic economic recovery. However, little is known about the determinants of R&D intensity (the share of R&D expenditure in GDP) and countries have repeatedly missed their set targets for this indicator. This article tackles this issue for a global panel consisting of 62 countries over the period 2007–2015 by using a dynamic system-generalized method of moments (SYS-GMM) panel model to uncover driving factors for R&D intensity. We also perform investigations on two homogenous subpanels constructed based on the income level of sample countries (High-income, and Middle- and Low-income subpanels), which contributes to assuring the robustness of results, along with formal model diagnostics and employment of alternative explanatory variables. We mainly find that the number of researchers is the most important driving factor for R&D intensity. High-technology exports have a statistically significant effect on R&D intensity only in middle and low-income countries. Patents are conducive to R&D intensity only in the high-income panel. Trade-openness is a significant mitigating factor for R&D investments throughout the panels and model specifications. Policy implications of results are also discussed.