Cross-industry distribution of R&D investments and economic growth

ABSTRACT

This study empirically investigates the relationship between the cross-industry distribution of R&D investments and economic growth across 14 countries for the period from 1996 to 2013. Although countries can invest disproportionately in a handful of industries hoping to use their limited resources efficiently and boost economic growth, complementarity between industries calls for balanced investments. Using the Herfindahl–Hirschman Index as the measure of R&D concentration, we find an inverted U-shaped relationship between the concentration of R&D investment and economic growth. Some level of concentration may be good for growth; however, beyond a certain point, concentration has a negative effect on growth. Moreover, heavy investment in high-technology manufacturing industry alleviates this negative effect of concentration. The opposite holds for much investment in the service industry. Lastly, we find that the importance of diversification increases when countries advance, while developing countries can benefit from strategic concentration.

KEYWORDS:

• R&D investment
• GDP per capita growth
• inverted U-shaped
• high-technology manufacturing industry
• service industry

JEL CLASSIFICATION:

• O11
• O14
• O38

Acknowledgements

We would like to thank the Global Ph.D. Fellowship from the National Research Foundation of Korea and the Ministry of SMEs and Startups for their helpful support during this research.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ Due to the lack of R&D investment data across countries from the Analytical Business Enterprise Research and Development (ANBERD) database of the OECD, we use 12 division levels representing the highest level class to construct consistent R&D investment data across countries and, thus, selecting 14 countries from 1996 to 2013 for our sample. These countries are Canada, the Czech Republic, Finland, Germany, Hungary, Italy, Japan, Mexico, Norway, Portugal, Singapore, South Korea, Spain and Turkey. In addition, details of division classes are described as in Table A1 of the Appendix.