Differences in business R&D intensity across OECD countries: the role of size-dependent regulation

ABSTRACT

We analyse the impact of size-dependent regulation in the labour market on business R&D intensity for 20 OECD countries spanning the periods 2002–2011. Using a difference-in-differences approach, we find that stricter size-dependent regulation leads firms with more than 50 employees to significantly reduce their R&D intensity. This finding implies that size-dependent regulation induces a distortion in the reallocation of R&D-related resources.

KEYWORDS:

• Size-dependent regulations
• EPL
• R&D
• firm size

JEL CLASSIFICATION:

• K31
• O30

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Countries included are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Korea, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, the United Kingdom and the United States. Since some countries reported information on R&D biannually, we interpolate the missing values of R&D by averaging the lag and lead of R&D values.

² By using EPL as a proxy for firing costs, Bassanini, Nunziata, and Venn (2009) show the negative effect of EPL on aggregate productivity in industries where lay-off restrictions are more likely to be binding. Kang (2015) also shows that the negative effect of EPL on aggregate productivity becomes bigger, as the economy is more open to trade.