Is increasing a share of R&D expenditure in GDP a factor in strengthening the level of innovation development in Ukraine compared with GII’s top countries?

Abstract

The study aims to test whether increasing a share of R&D expenditure in GDP strengthens the level of innovation development in Ukraine compared with top countries in the Global Innovation Index. It models the impact of changing a share of R&D expenditure in GDP on the level of innovation development based on 10 countries-leaders in GII 2022 and Ukraine. Correlation analysis proved the existence of a relationship between the levels of R&D expenditure (as percent of GDP) and innovation development (the overall score of GII); its strength and direction are characterized (for 2011–2020). The results show that in GII’s top countries, the relationship between innovation development and R&D expenditure is direct in 70% of the sample’s countries, mostly with high and very high relationship power without time lag or 1-2-year time lag. This relationship is inverse in Ukraine, with high relationship power and a 1-year time lag. The system dynamic linear panel-data model is built to determine and formalize the impact of changing a share of R&D expenditure in GDP on the level of innovation development for GII’s top countries and the linear regression model – for Ukraine. For GII’s top countries, it is confirmed that with an increase in R&D expenditures by 1%, innovation development potentially increases by an average of 2.71%, and in Ukraine – it decreases by an average of 4.8%. This discrepancy is explained by the need to improve state policy and regulatory framework in innovation development and its financing in Ukraine.