How R&D Expenditures Influence Total Factor Productivity and Technical Efficiency?

Abstract

In this paper we estimate the impact of R&D expenditures on the total factor productivity (TFP) and technical efficiency of two panels of countries in the period 1990-2011. We obtain TFP decomposition estimates using one-and two-step Stochastic Frontier Analysis (SFA) and a modified (O'Donnell, 2008) Data Envelopment Analysis (DEA) framework. Our estimates of TFP growth rates correlate highly with those of OECD, The Conference Board and PWT. The efficiency-based rankings of the countries are similar to those from the results of other studies.The estimates of R&D's impact on TFP and technical efficiency were obtained controlling for various factors, including the structure of the economy, institutional and infrastructural development and R&D expenditures over a total of five hundred possible model specifications.We found that the increase in total R&D expenditures by 1% of GDP in five years raises the average TFP growth rate by 5.0 to 7.7 percentage points, depending on the sample. Also, raising total R&D expenditures by $1,000 per researcher raises TFP growth five years later by 0.013 to 0.025 percentage points, depending on the sample. Also we have identified a significant impact of lagged R&D expenditures (up to ten years) on the dynamics of the global technology frontier component in the presence of a number of control variables.

Assessing Economic Growth Quality

“…Domestic investment or gross fixed capital formation has both in terms of theory (Keller and Yeaple, 2009) and empirically (Neanywa and Makhenyane, 2016) recognized as an essential component to facilitate economic growth. The professional literature has repeatedly stated both theoretically and empirically that research and development (R&D) expenditures have significant impact on TFP, both in short and long terms, moreover by various approaches and estimation techniques։ Autoregressive distributed lag (Saifuzzaman et al, 2014), data envelopment analysis and one-step and two-step stochastic frontier analysis (Apokin and Ipatova, 2016), pooled mean group (Aydin et al, 2018), non-linear (Kijek and Kijek, 2020), dynamic fixed effect (Abidin and Shaari, 2021), etc. We used share of R&D expenditures in GDP to neutralize the differences among scales of countries during the index calculation process.…”

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