Impact of R&D and AI Investments on Economic Growth and Credit Rating

TL;DR

This study examines how R&D and AI investments influence economic growth and credit ratings, finding significant impacts on GDP and estimating substantial investments needed for Georgia to improve its credit rating.

Contribution

It provides new empirical evidence on the relationship between R&D, AI investments, and economic growth, and introduces an EVA-based model to assess credit rating improvements for Georgia.

Findings

A 10% increase in R&D leads to a 0.70% GDP rise.

Increasing R&D by 30-35% significantly impacts GDP.

Georgia needs $61.7 billion in investments to reach BBB rating.

Abstract

The research and development (R&D) phase is essential for fostering innovation and aligns with long-term strategies in both public and private sectors. This study addresses two primary research questions: (1) assessing the relationship between R&D investments and GDP through regression analysis, and (2) estimating the economic value added (EVA) that Georgia must generate to progress from a BB to a BBB credit rating. Using World Bank data from 2014-2022, this analysis found that increasing R&D, with an emphasis on AI, by 30-35% has a measurable impact on GDP. Regression results reveal a coefficient of 7.02%, indicating a 10% increase in R&D leads to a 0.70% GDP rise, with an 81.1% determination coefficient and a strong 90.1% correlation. Georgia's EVA model was calculated to determine the additional value needed for a BBB rating, comparing indicators from Greece, Hungary, India, and Kazakhstan as benchmarks. Key economic indicators considered were nominal GDP, GDP per capita, real GDP growth, and fiscal indicators (government balance/GDP, debt/GDP). The EVA model projects that to achieve a BBB rating within nine years, Georgia requires $61.7 billion in investments. Utilizing EVA and comprehensive economic indicators will support informed decision-making and enhance the analysis of Georgia's economic trajectory.