The Impact of Research and Development Expenditures on the Growth of Turkish Manufacturing Industry

Background

Studies of the relationship between R&D expenditures and productivity appear at different levels of aggregation (economy, sector, firm) depending on the objective of the analysis. Generally, these studies reach the conclusion that R&D fosters firm productivity with estimated output elasticity with respect to business R&D varying from 10% to 30%¹. The large variation in the R&D elasticity is mainly attributed to the fact that studies differ in terms of the econometric specification, data sources, number of economic units, measurement methods for R&D and economic performance, and periods under study. The bulk of studies examining the relationship between innovation and firm-level productivity is inspired by the seminal paper by Crépon et al. (1998), which employ a structural model where R&D expenditure, innovation output and productivity are modeled in a sequential manner. Innovation output is measured by either the number of patents or the share of innovative sales. Variants of this model employed by Crépon et al. (1998), have been estimated for developed and less developed countries based on firm-level data (See for example Parisi, et al., 2006, for Italy; Loof & Heshmati, 2002, for Sweden; Loof, et al., 2003, for Finland, Norway, and Sweden; Galia & Legros, 2004, for France; Benavente, 2006, for Chile; Stoevsky, 2005, for Bulgaria). These studies generally confirm the findings of Crépon et al. (1998) reporting that innovation expenditure affects innovation output and the latter affects productivity.