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Can government R&D expenditure promote innovation? New evidence from 37 OECD countries

    Yemin Ding Affiliation
    ; Fengchun Yin Affiliation
    ; Lee Chin Affiliation
    ; Kun Zhou Affiliation
    ; Farhad Taghizadeh-Hesary Affiliation
    ; Yaning Li Affiliation

Abstract

This research employs a fixed effect model to empirically estimate panel data from 37 OECD countries spanning 2000 to 2021, revisiting the influence of government R&D expenditure on innovation within the theory of marginal diminishing effect. Results reveal a significant positive effect of government R&D expenditure on national innovation capacity, and this influence remains robust under robustness checks. Then, quantile regression uncovers a nuanced pattern, indicating that as a country’s innovation capacity strengthens, the stimulative effect of government R&D expenditure initially rises and subsequently declines. Additionally, incorporating lags of the independent variable at different periods affirms the time lag effect of government R&D expenditure on national innovation capacity. Deeper scrutiny using two fixed effect models including interaction terms reveals a multifaceted mechanism, where government R&D expenditure fosters innovation by promoting bank credit, yet simultaneously suppresses innovation by hindering non-governmental R&D intensity. Lastly, heterogeneity analysis affirms that government efficiency, democracy, ruling party ideology, political stability, and economic freedom moderate the link between government R&D expenditure and national innovation capacity. These insights offer new references for governments to promote innovation.


First published online 23 October 2024

Keyword : government R&D expenditure, innovation, OECD, bank credit, government efficiency

How to Cite
Ding, Y., Yin, F., Chin, L., Zhou, K., Taghizadeh-Hesary, F., & Li, Y. (2024). Can government R&D expenditure promote innovation? New evidence from 37 OECD countries. Technological and Economic Development of Economy, 1-25. https://doi.org/10.3846/tede.2024.22293
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This work is licensed under a Creative Commons Attribution 4.0 International License.

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