IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v26y2012i2p258-272.html
   My bibliography  Save this article

Financial market development and the effectiveness of R&D investment: Evidence from developed and emerging countries

Author

Listed:
  • Chowdhury, Reza H.
  • Maung, Min

Abstract

Does financial market development enhance the effectiveness of R&D investment in an economy? To address this question, we apply three distinct approaches including (i) ordinary least square method, (ii) cross-country instrumental variable regression approach, and (iii) panel regression method. By using a dataset of both developed and emerging countries, we find that financial market development significantly contributes to the effectiveness of total R&D investment. This finding remains robust across different model specifications and individual estimation methods. Our finding provides an important guidance to policy makers in implementing a sound financial environment that can facilitate the total contribution of R&D investment.

Suggested Citation

  • Chowdhury, Reza H. & Maung, Min, 2012. "Financial market development and the effectiveness of R&D investment: Evidence from developed and emerging countries," Research in International Business and Finance, Elsevier, vol. 26(2), pages 258-272.
    • Handle: RePEc:eee:riibaf:v:26:y:2012:i:2:p:258-272
    DOI: 10.1016/j.ribaf.2011.12.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531911000602
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2011.12.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrei Shleifer & Florencio Lopez-de-Silanes & Rafael La Porta, 2008. "The Economic Consequences of Legal Origins," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 285-332, June.
    2. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
    3. Kafouros, Mario I., 2008. "Economic returns to industrial research," Journal of Business Research, Elsevier, vol. 61(8), pages 868-876, August.
    4. Valentina Meliciani, 2000. "The relationship between R&D, investment and patents: a panel data analysis," Applied Economics, Taylor & Francis Journals, vol. 32(11), pages 1429-1437.
    5. Choi, Won W. & Kwon, Sung S. & Lobo, Gerald J., 2000. "Market Valuation of Intangible Assets," Journal of Business Research, Elsevier, vol. 49(1), pages 35-45, July.
    6. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    7. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    8. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    9. Bencivenga, Valerie R. & Smith, Bruce D., 1993. "Some consequences of credit rationing in an endogenous growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 97-122.
    10. Ding, Yuan & Hope, Ole-Kristian & Jeanjean, Thomas & Stolowy, Herve, 2007. "Differences between domestic accounting standards and IAS: Measurement, determinants and implications," Journal of Accounting and Public Policy, Elsevier, vol. 26(1), pages 1-38.
    11. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    12. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    13. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    14. Zvi Griliches, 1958. "Research Costs and Social Returns: Hybrid Corn and Related Innovations," Journal of Political Economy, University of Chicago Press, vol. 66(5), pages 419-419.
    15. Dominique Guellec & Bruno Van Pottelsberghe de la Potterie, 2004. "From R&D to Productivity Growth: Do the Institutional Settings and the Source of Funds of R&D Matter?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(3), pages 353-378, July.
    16. Levine, Ross, 1998. "The Legal Environment, Banks, and Long-Run Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 596-613, August.
    17. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
    18. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    19. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
    20. Colombage, Sisira R.N., 2009. "Financial markets and economic performances: Empirical evidence from five industrialized economies," Research in International Business and Finance, Elsevier, vol. 23(3), pages 339-348, September.
    21. Mansfield, Edwin, 1988. "Industrial R&D in Japan and the United States: A Comparative Study," American Economic Review, American Economic Association, vol. 78(2), pages 223-228, May.
    22. Asli Demeirgüç-Kunt & Ross Levine (ed.), 0. "Finance and Growth," Books, Edward Elgar Publishing, number 17119.
    23. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
    24. René M. Stulz, 2000. "Financial Structure, Corporate Finance and Economic Growth," International Review of Finance, International Review of Finance Ltd., vol. 1(1), pages 11-38, March.
    25. Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 8-35, January.
    26. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    27. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2010. "Financial Institutions and Markets across Countries and over Time: The Updated Financial Development and Structure Database," The World Bank Economic Review, World Bank, vol. 24(1), pages 77-92, January.
    28. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    29. Lederman, Daniel & Maloney, William F., 2003. "Research and development (R&D) and development," Policy Research Working Paper Series 3024, The World Bank.
    30. Le, Son Anh & Walters, Bruce & Kroll, Mark, 2006. "The moderating effects of external monitors on the relationship between R&D spending and firm performance," Journal of Business Research, Elsevier, vol. 59(2), pages 278-287, February.
    31. Bravo-Ortega, Claudio & García Marín, Álvaro, 2011. "R&D and Productivity: A Two Way Avenue?," World Development, Elsevier, vol. 39(7), pages 1090-1107, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arif Khan, Muhammad & Qin, Xuezhi & Jebran, Khalil & Ullah, Irfan, 2020. "Uncertainty and R&D investment: Does product market competition matter?," Research in International Business and Finance, Elsevier, vol. 52(C).
    2. Hsiu-I Ting, 2017. "Financial development, role of government, and bank profitability: evidence from the 2008 financial crisis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 370-391, April.
    3. Bai, Dongbei & Du, Lizhao & Xu, Yang & Abbas, Shujaat, 2023. "Climate policy uncertainty and corporate green innovation: Evidence from Chinese A-share listed industrial corporations," Energy Economics, Elsevier, vol. 127(PB).
    4. Wang, Rong & Tan, Junlan, 2021. "Exploring the coupling and forecasting of financial development, technological innovation, and economic growth," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    5. Haixia Shi & Change Shen, 2022. "Tax Competition, Capital Flow, and the Innovation Efficiency of Industrial Enterprises," Sustainability, MDPI, vol. 14(8), pages 1-12, April.
    6. Xiang Yan & Yongchun Huang, 2021. "Is there a nonlinear economic threshold effect of financial development on the efficiency of sci‐tech innovation? An empirical test from the Yangtze River Economic Belt," Growth and Change, Wiley Blackwell, vol. 52(3), pages 1387-1409, September.
    7. Pradhan, Rudra P. & Arvin, B. Mak & Norman, Neville R. & Nair, Mahendhiran & Hall, John H., 2016. "Insurance penetration and economic growth nexus: Cross-country evidence from ASEAN," Research in International Business and Finance, Elsevier, vol. 36(C), pages 447-458.
    8. Wei Qiu & Yinghua Li & Haitao Wu, 2023. "The role of direct financing on regional green development: inhibition or promotion?," Economic Change and Restructuring, Springer, vol. 56(5), pages 3665-3699, October.
    9. Sun, Yanan & You, Xiaotong, 2023. "Do digital inclusive finance, innovation, and entrepreneurship activities stimulate vitality of the urban economy? Empirical evidence from the Yangtze River Delta, China," Technology in Society, Elsevier, vol. 72(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    2. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    3. Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
    4. Ndikumana, Leonce, 2005. "Financial development, financial structure, and domestic investment: International evidence," Journal of International Money and Finance, Elsevier, vol. 24(4), pages 651-673, June.
    5. Nataliia Osina, 2021. "Global governance and gross capital flows dynamics," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(3), pages 463-493, August.
    6. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 173-222.
    7. Morganti, Patrizio & Garofalo, Giuseppe, 2019. "Reassessing the law, finance, and growth nexus after the recent Great recession," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 229-250.
    8. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    9. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084, Central Bank of Chile.
    10. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    11. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
    12. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross & Maksimovic, Vojislav, 2000. "Financial structure and economic development - firm, industry, and country evidence," Policy Research Working Paper Series 2423, The World Bank.
    13. Riccardo Lucchetti & Luca Papi & Alberto Zazzaro, 2001. "Banks’ Inefficiency and Economic Growth: A Micro‐Macro Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(4), pages 400-424, September.
    14. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    15. Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank.
    16. Muhammad Arshad Khan, 2007. "Foreign Direct Investment and Economic Growth : The Role of Domestic Financial Sector," Finance Working Papers 22205, East Asian Bureau of Economic Research.
    17. Huang, Ho-Chuan (River) & Fang, WenShwo & Miller, Stephen M., 2014. "Does financial development volatility affect industrial growth volatility?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 307-320.
    18. Muhammad Shahbaz & Ijaz Ur Rehman & Ahmed Taneem Muzaffar, 2015. "Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 452-471, September.
    19. Gründler, Klaus & Weitzel, Jan, 2013. "The financial sector and economic growth in a panel of countries," Discussion Paper Series 123, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    20. Ang, James B. & McKibbin, Warwick J., 2007. "Financial liberalization, financial sector development and growth: Evidence from Malaysia," Journal of Development Economics, Elsevier, vol. 84(1), pages 215-233, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:26:y:2012:i:2:p:258-272. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.