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What promotes R&D? Comparative evidence from around the world

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  • Brown, James R.
  • Martinsson, Gustav
  • Petersen, Bruce C.

Abstract

R&D drives innovation and productivity growth, but appropriability problems and financing difficulties likely keep R&D investment well below the socially optimal level, particularly in high- technology industries. Though countries around the world are increasingly interested in using tax incentives and other policy initiatives to address this underinvestment problem, there is little empirical evidence comparing the effectiveness of alternative domestic policies and institutions at spurring R&D. Using data from a broad sample of OECD economies, we find that financial market rules that improve accounting standards and strengthen contract enforcement share a significant positive relation with R&D in more innovative industries, as do stronger legal protections for intellectual property. In contrast, stronger creditor rights and more generous R&D tax credits have a negative differential relation with R&D in more innovative industries. These results suggest that domestic policies directly dealing with appropriability and financing problems may be more effective than traditional tax subsides at promoting the innovative investments that drive economic growth.

Suggested Citation

  • Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2017. "What promotes R&D? Comparative evidence from around the world," Research Policy, Elsevier, vol. 46(2), pages 447-462.
  • Handle: RePEc:eee:respol:v:46:y:2017:i:2:p:447-462
    DOI: 10.1016/j.respol.2016.11.010
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    Cited by:

    1. Dimitrios Pontikakis & Mathieu Doussineau & Nicholas Harrap & Mark Boden, 2018. "Mobilising European Structural and Investment Funds and Horizon 2020 in support of innovation in less developed regions," JRC Working Papers JRC112442, Joint Research Centre (Seville site).
    2. repec:eee:respol:v:47:y:2018:i:6:p:1084-1095 is not listed on IDEAS
    3. Montmartin, Benjamin & Herrera, Marcos & Massard, Nadine, 2018. "The impact of the French policy mix on business R&D: How geography matters," Research Policy, Elsevier, vol. 47(10), pages 2010-2027.
    4. Kadri Männasoo & Heili Hein, 2017. "Are R&D companies credit-constrained? Credit frictions during and post-crisis," TUT Economic Research Series 29, Department of Finance and Economics, Tallinn University of Technology.
    5. Coad, Alex, 2019. "Persistent heterogeneity of R&D intensities within sectors: Evidence and policy implications," Research Policy, Elsevier, vol. 48(1), pages 37-50.
    6. repec:eee:finlet:v:24:y:2018:i:c:p:81-89 is not listed on IDEAS
    7. Benjamin Montmartin & Marcos Herrera & Nadine Massard, 2017. "R&D Policy regimes in France: New Evidence from a spatio-temporal Analysis," GREDEG Working Papers 2017-22, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    8. Emanuela Carbonara & Giuseppina Gianfreda & Enrico Santarelli & Giovanna Vallanti, 2019. "The Impact of Intellectual Property Rights on Labor Productivity: Do Constitutions Matter?," Working Papers LuissLab 19151, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    9. repec:gam:jsusta:v:11:y:2019:i:5:p:1321-:d:210516 is not listed on IDEAS
    10. Heili Hein & Kadri Männasoo, 2017. "Are business obstacles different for R&D companies?," TUT Economic Research Series 33, Department of Finance and Economics, Tallinn University of Technology.
    11. Kadri Männasoo & Heili Hein, 2017. "Capital investments and financing structure: Are R&D companies different?," TUT Economic Research Series 26, Department of Finance and Economics, Tallinn University of Technology.
    12. Ch.-M. CHEVALIER, 2018. "Financial constraints of innovative firms and sectoral growth," Documents de Travail de l'Insee - INSEE Working Papers g2018-05, Institut National de la Statistique et des Etudes Economiques.
    13. repec:red:issued:17-109 is not listed on IDEAS
    14. repec:eee:respol:v:47:y:2018:i:7:p:1243-1255 is not listed on IDEAS
    15. Angus Chu & Guido Cozzi, 2018. "Effects of Patents versus R&D subsidies on Income Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 68-84, July.

    More about this item

    Keywords

    R & D; innovation; R & D tax credits; Financial markets; Intellectual property protection; Technological change;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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