How institutional quality and economic factors impact technological deepening in developing countries

This paper assesses the effect of institutional and economic factors on research and development (R&D) expenditures in developing countries. The paper finds that several measures of institutional quality are correlated with R&D expenditures. Since the institutional variables increase as institutional quality improves, this suggests that stronger institutions and better protection of property rights encourage greater R&D expenditures. In addition, foreign direct investment is negatively correlated within R&D expenditures, while defense expenditures are positively correlated with R&D expenditures in some model specifications. Although R&D is not the primary way that developing countries gain access to technology, these results are of interest since R&D might encourage technological deepening better than other methods that developing countries use to gain access to technology (e.g., through FDI or capital goods imports). Copyright © 2001 John Wiley & Sons, Ltd.