State Financial Management as the Basis for Innovative Development: Cross-Country Analysis

Abstract

A key element in ensuring effective public activity is the management of state financial resources and coordination of its financial flows. Given the rapid pace of innovative technologies development and the formation of the course of countries’ development towards global digitalization, there is a need to study the relationship between the level of innovative development of the country and its state financial management. This article summarizes the arguments and counterarguments within the scientific discussion on the place and prospects of state participation in the formation of the basis for innovative development. The main purpose of the study is to confirm the hypothesis about the functional links between the main components of budgetary resources and the level of innovative development of the country. In this regard, the array of input data is presented in the form of nine independent variables (regressors) and two dependent variables (regressands). Four of the independent variables denote individual budget revenue items, and five – expenditure, while the dependent variables (regressands) identify the level of innovation development countries. The study of the impact of state financial resources on the level of innovative development of the country is carried out in the following logical sequence: the formation of an array of input data; formalization of functional relationships between variables by constructing two-panel multifactor regression models with random effects and interpretation of the obtained results. The object of the study is nine CIS countries and their closest neighbors. The study period covered 2011-2018. The study empirically confirms the above hypothesis, which is evidenced by the following identified dependences. The level of innovation development (presented by the Innovation index) depends on changes in the structure of the state budget, in particular in direct proportion to the Compensation of employees and inversely in proportion to the items Revenue and Other expense. At the same time, the change in research and development expenditures of the country is directly proportional to the items Compensation of employees and Subsidies and other transfers, and inversely proportional to item Tax revenue and expense. The results of the study could be useful for public authorities that provide public financial management and seek to optimize activities to support innovative development. Keywords: state financial management, government expenses, government revenues, innovative development, CIS countries, regression analyses.