R&D expenditures and economic growth: A panel data analysis for selected developing economies

Abstract

Growth theory suggests that technological development is the primary determinant of long-term economic growth, and research and development (R&D) activities are considered the driving force of technological development. This study aims to investigate the relationship between economic growth and R&D spending. To this end, we study the relationship between gross domestic product (GDP) per capita and the ratio of R&D expenditures to GDP in a group of developing and newly developed economies (namely, Brazil, Chile, Colombia, Indonesia, India, Peru, Republic of Korea, Russian Federation, Singapore, Thailand, and Türkiye) using annual data from 2000 to 2020. Using the fixed effects model, a panel data analysis is estimated, where gross domestic product (GDP) per capita is used as the dependent variable and R&D expenditures as a ratio of GDP is used as an independent variable. We also utilized gross fixed capital formation, labor force, and aggregate government expenditures as a ratio of GDP as control variables. The results indicate a significant and positive relation between R&D spending and economic growth. Specifically, a 1% increase in R&D expenditures leads to a 0.27% increase in GDP per capita. We also find that the model's control variables have positive and significant effects on economic growth. Given its favorable impact on economic growth, especially developing countries may be advised to allocate more resources to R&D activities.