PUBLIC, PRIVATE OR UNIVERSITIES?: THE EFFECTIVENESS OF R&D EFFORTS IN OECD COUNTRIES

Abstract

The aim of this study is to investigate the differential impacts of business, government and higher education sectors’ research and development expenditures (R&D) on innovation in OECD countries. Although the business sector has the largest share of the R&D sector due to its profit motive, there are also some efforts made by public and higher education sectors. On the other hand, for decades, the literature of economics is in doubt about the efficiency of the public sector. The study deals with the issue by making a panel data analysis covering 18 OECD countries over the 1981-2016 period and aims to examine the separated effects of these sectoral R&D expenditures on innovation performance. Since most of the existing literature mostly focused on the R&D-GDP relationship, the present study aims to contribute to a relatively untouched point. To obtain robust findings, recent econometric tests and estimators have been used. The previous studies in the existing literature ignored the possibility of cross-sectional dependence problem within the country samples. Ignoring this problem may yield biased and inconsistent results. The present study considers the existence of cross-sectional dependence between selected countries and checks the robustness of each test and estimator via recent econometric techniques. The findings reveal firstly that there is a cointegrating relationship between the number of domestic patents (innovation) and the other three R&D indicators. Secondly, the longrun estimation results imply that increases in the R&D expenditures made by business sector significantly raise innovation while there is no statistically significant evidence on the impact of R&D expenditures made by the government and higher education sectors. The findings reveal that the R&D efforts made by the government and higher education sectors cannot turn into innovation and do not contribute to the knowledge spillover mechanism.