Abstract
Purpose The purpose of this paper is to analyse the role that different financial sources and financial specialization have on private research and development (R&D) activity in OECD countries. Design/methodology/approach The authors developed several panel regressions choosing as a final model a two-way random effects regression to understand which funding sources are related to the R&D expenditure, and how financial specialization has links to the private portion of R&D aggregated expenditure. The authors include data from the years 2000 to 2016 for OECD countries. Findings The results reinforce the critical role that stock markets have in enhancing private R&D and that bond markets have an inverse relationship with private R&D national expenditures. The authors do not find evidence of a link between bank sources and private R&D. Specialized financial systems (banking or market) support innovation in a better way than a mixed arrangement of those two systems. Practical implications The findings of this study have considerable policy implications. Policymakers need to be aware of these results, given that some variables related to financial markets, seems to boost the inputs for R&D. In the long term, this could be a signal that national and regional systems of innovation need a broad view of the factors hampering scientific activity, and also a signal that there are other ways to impact the results of the complex innovation activity through the development of stronger financial systems backing up national systems of innovation. Originality/value The authors found that the long discussion about the financial system that a country has to choose to enhance growth with R&D&I may have been misleading the public policy. The findings show that rather than a bank or a stock market financial system, economies looking to boost R&D&I, must specialize in one of the two systems, deepen these and generate the appropriate policies to promote science, technology and innovation using those financial markets.
Highlights
Financial markets seem to be deeply related to economic growth
We include this lag given possible endogeneity issues; this result tells us that as it was concluded by Dosi (1982), in the case of individual firms, and by Redding (2002), in the case of an entire economy, there is enough evidence to say that private research and development (R&D) in OECD countries tend to follow a historical path, this is, countries in which private R&D expenditure was high in the past, would tend to have higher private R&D expenditures in the future
We analysed the role that financial markets have on the proportion of private R&D expenditure in OECD countries between 2000 and 2016, for this, we used a two-way random effects panel model approach, to understand which type of financial sources, are related with private research activity within those countries
Summary
Financial markets seem to be deeply related to economic growth. Well-developed financial systems tend to diminish cost transactions and promote efficiency on resource allocation (Beck and Levine, 2004; Beck et al, 2000; Prochniak and Wasiak, 2017; Rajan and Zingales, 1998); it is expected that countries with a better financial framework, tend to grow higher than those with underdeveloped financial systems.At the same time, it seems to be a discussion related to the best type of financial system needed to create such growth, whether the development of bank or market based financial systems, given that one type of financial system could be better than the other to promote those efficiencies (Arestis et al, 2001; Beck and Levine, 2002, 2004; Carlin and Mayer, 2003; Demirgüç-Kunt and Maksimovic, 2002; Durusu-Ciftci et al, 2017; Levine, 1997; Zysman, 1984); the fact that there are high growth rates in countries with both type of systems, tend to highlight the fact that there is no only one type of financial system related with economic growth (Beck and Levine, 2004; Hasan et al, 2018; Lee, 2012; Luintel et al, 2008) or at least, that the real discussion has to be focused not on the type, but on how those systems interact to support economic growth. In recent decades, the evolution of studies describing the technological change and the economics of innovation, have concluded that innovation creates economic growth through productivity increases (Akcigit and Kerr, 2018; Crepon et al, 1998; Romer, 1990; Solow, 1956; Stulz, 2003). Following that idea, it is a fundamental task for governments around the world to support innovation activities to generate economic growth in the long term. There are several ways in which governments can help to increase innovation activities, for example, through the development of direct interventions like, granting subsidies to innovative firms, the generation of tax incentives for companies making R&D (Czarnitzki and Hussinger, 2018), or the generation of indirect measures like, promoting innovation ecosystems through the generation of strong institutions related with innovation (Barbosa and Faria, 2011; Furman et al, 2002; Lundvall, 1999; Lundvall, 2010), some of those institutions could be universities, research centres, government organizations or even, a robust financial framework related with innovation
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