The Relationship Between R&D Expenditures and Economic Growth ın OECD Countries With Different Causality Tests

The Relationship Between R&D Expenditures and Economic Growth ın OECD Countries With Different Causality Tests

Gökhan Karhan (Batman University, Turkey)
Copyright: © 2020 |Pages: 12
DOI: 10.4018/978-1-5225-8458-2.ch006

Abstract

In this chapter, the relationship between research and development (R&D) expenditures and economic growth was investigated with both Emirmahmutoğlu and Köse Causality test and the Dimitrescu and Hurlin Panel Causality test based on Rolling Windows Regression for the selected 19 OECD member countries for the period 1996-2015. The results concluded that for all panel there is a causality from economic growth to R&D expenditures. In this study, the relationship between variables was investigated using different mathematical techniques like rolling windows. According to the results of the Dimitrescu and Hurlin Panel Causality Test based on Rolling Window Regression, which is applied differently from other studies in the literature, there was a causality from economic growth to R&D expenditures in 2010. In 2011, there was causality from R&D expenditures to economic growth for all panels.
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Theoretical Background

Until the emergence of endogenous Growth Models, classical economists such as the Neoclassical economists and the Evolutionary approach failed to fully explain the relationship between technological growth and economic growth. These deficiencies have been addressed with the studies of Romer (1986) and Lucas (1988), whose investigated economic growth model that includes knowledge referred to as Endogenous Growth Models.

The ‘’endogenous’’ term refers to innovations that arise from conscious activities realized by companies or consumers to maximize their profits or benefits (Dinopoulos & Şener, 2003).

The Endogenous growth theories emphasize that the main driving force to ensure the sustainability of growth are R&D activities and that the inputs related to these activities should be supported. Although there are many studies that attempt to explain the impact of R&D activities on growth, there are two main approaches.

In the first group of models (Romer, 1986; Lucas, 1988; Rebelo, 1991; and Barro 1990), technological development is indirectly caused by economic activities which are related to some other factors. The common feature of these group models is that they are based on competitive market conditions. Rebelo’s model (1991) which shows in the simplest way that per capita growth can be sustained even in the absence of external technological development by abolishing the assumption of the diminishing marginal return of capital.

Y = AK

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