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How to Increase R&D in Transition Economies? Evidence from Slovenia

  • Domadenik, Polona


    (University of Ljubljana)

  • Prašnikar, Janez


    (University of Ljubljana)

  • Svejnar, Jan


    (Columbia University)

Paper addresses the recent initiatives of EU Lisbon Agenda to increase level of R&D expenses in EU Member States by studying firm-level panel data in most advanced transition economy, Slovenia. Previous empirical literature – mainly cross-sectional – has tested the demand-pull hypothesis and found in overall that R&D expenses may be driven by output. Using a panel of over 150 Slovene firms over the 1996-2000 period, and checking for fixed effects, time, industrial and size dummies and for the path-dependent nature of R&D, we also find a significant role of sales in inducing R&D expenditures. Besides that data also confirm that internal funds and (un)successful bargaining for higher wages present significant variables for higher R&D expenses. However, at the micro level, the demand-pull, internal funds and bargaining effects play a varying role for the different sub-samples of firms. In particular, exporting firms, those which are liquidity-constrained, those not receiving public subsidies and those not heading a business group, seem to be particularly sensitive in deciding their R&D expenditures. R&D behavior at the firm level is modeled as error-correction model and estimated in system GMM specification.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2801.

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Length: 23 pages
Date of creation: May 2007
Date of revision:
Publication status: published in: Review of Development Economics, 12(1), 193-208
Handle: RePEc:iza:izadps:dp2801
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  1. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2003. "Investment, R&D and financial constraints in Britain and Germany," LSE Research Online Documents on Economics 771, London School of Economics and Political Science, LSE Library.
  2. Hall, Bronwyn H., 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," Department of Economics, Working Paper Series qt5j59j6x3, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Himmelberg, Charles P & Petersen, Bruce C, 1994. "R&D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 38-51, February.
  4. Jacques Mairesse & Mohamed Sassenou, 1991. "R&D Productivity: A Survey of Econometric Studies at the Firm Level," NBER Working Papers 3666, National Bureau of Economic Research, Inc.
  5. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  6. Hall, B. & Mairesse, J. & Branstetter, L. & Crepon, B., 1998. "Does Cash Flow cause Investment and R&D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms," Economics Papers 142, Economics Group, Nuffield College, University of Oxford.
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  8. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-73, March.
  9. Hayakawa, Kazuhiko, 2007. "Small sample bias properties of the system GMM estimator in dynamic panel data models," Economics Letters, Elsevier, vol. 95(1), pages 32-38, April.
  10. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  11. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  12. Polona Domadenik & Janez Prašnikar & Jan Svejnar, 2003. "Defensive and Strategic Restructuring of Firms during the Transition to a Market Economy," William Davidson Institute Working Papers Series 541, William Davidson Institute at the University of Michigan.
  13. repec:oup:restud:v:61:y:1994:i:2:p:197-222 is not listed on IDEAS
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  15. repec:oup:qjecon:v:112:y:1997:i:1:p:169-215 is not listed on IDEAS
  16. Hahn, Jinyong & Hausman, Jerry, 2002. "Notes on bias in estimators for simultaneous equation models," Economics Letters, Elsevier, vol. 75(2), pages 237-241, April.
  17. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
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