Incentives, Institutions and Investment in Private Agricultural Reasearch in Asia

Agricultural Research and Development (R&D) is critical to enhance agricultural productivity and, by extension, feed the world’s growing population. Despite the important role that research and innovation plays, the trend of underinvestment in agricultural research is worrisome, especially given the decreasing fiscal ability of many national governments. Increasingly, governments are turning towards the private sector to step up investment. The research presented in this paper explores the relationship between economic incentives, policies and institutional environment on private investment in agriculture R&D in the Asia-Pacific region. Both a descriptive analysis of key developments in the agricultural industry and the national innovation system, and an empirical study quantifying the effects of the determinants on private investment are conducted. The study uses panel data with information on 7 countries in the Asia-Pacific region from 1995-2003 to test the hypothesis that the expected market sizes for R&D outputs (including both domestic and external markets) and the appropriability of returns from innovation from institutional policies (which includes property rights and institutional environment) can induce greater private expenditure in agriculture R&D. Three linear regression models of private investment in agriculture R&D are built and tested. Research findings indicate that size of agriculture markets and government effectives have a positive relationship with private investment in agricultural R&D, while economic openness and strength of Intellectual Property Regime (IPR) are found to be negatively correlated to private investment. The results for economic openness and IPR strength reveal that a minimum level of domestic technological capacity is required before developing countries can benefit from increased foreign private investment in R&D efforts.