Complementarity between private and public investment in R&D: A Dynamic Panel Data analysis

TL;DR

This study examines how public and private R&D investments interact and influence economic growth, highlighting the roles of policies, spillovers, and human capital across multiple countries.

Contribution

It introduces a heterogeneous dynamic panel data model to analyze the endogenous relationship between public and private R&D investments and their effects on growth.

Findings

Public and private R&D investments are complementary.

Foreign direct investment is a significant spillover channel.

R&D investments depend on the host country's human capital.

Abstract

This paper investigates the relationship between private and public investment in R&D, while taking into account the effect of several instruments policies such as subsidies and taxes. We design a new look of knowledge spillovers and R&D cooperation to explain the contribution of public and private R&D on growth. We propose a heterogeneous dynamic panel data model to consider the endogenous effect of R&D investment. We also distinguish between the estimated long and short run results. Our results based on a sample of 23 countries over the period 1992-2004 indicate that both public and private investments in R&D are complementary. By establishing an endogenous growth model, the estimates indicate that public and private R&D depends on the host country's human capital investment. Results indicate that foreign direct investment is a more significant spillover channel than imports.