National Growth as a Result of Research and Development Expenditures

Economic growth requires the creation of new products and services for sale that develops new financial revenue streams. Creative works contribute to economic growth by allowing for solutions to market problems and effective consumer utility. On a national scale research and development can increase the gross national product of entire nations. 

The first step in understanding economic development is the production of creative works. Creative works can be defined as a systematic approach to increase the stock of knowledge that contributes to man, culture and society by developing new applications (OECD, 1993). Such creative works are then further developed to make consumer products. 

The human capacity to innovate has an impact on productivity growth (Porter and Stern, 2000). This productivity growth is based on the intellectual capital within R& D projects and available national knowledge stock. As investments are moved into R&D, it is the human capacity that develops creative works from available information to solve market problems. 

Research by Guloglu and Tekin (2012) studied the relationships among R&D, innovation and economic growth in the countries of Australia, Canada, Finland, France, Germany, Italy, Japan, Korea, Netherlands, Portugal, Spain, United Kingdom and the United States.  R&D expenditures, patents and Gross National Product were considered important factors in the research in order to determine how each influences the other. A Granger-Causality Testing Methodology was used to analyze the results. 

Results: 

-There are positive relationships between R&D and innovation, R&D and economic growth, and economic growth with innovation. 

-R&D cause technological change and this technological change causes economic growth. 

-Causality relations between R& D and technology may also work in reverse. 

-Support for the Schumpeterian view that R&D sectors generate innovation and enhance rates of growth in the economy.

-Support that inventive activity and innovation are pro-cyclical. 

Analysis:

The development of national wealth is a result of the capacity to use human capital to engage in R&D projects that can be used to develop creative works and enhance GNP. Organizations contribute uniquely to the development of their nation by developing products and services that create higher levels of revenue that make their way into the economy. Through synergistic R&D developments and knowledge sharing national positions on the global market can be enhanced.

Author: Dr. Murad Abel

Guloglu, B. and Tekin, R. (2012). A panel causality analysis of the relationship among research and development, innovation and economic growth in high-income OECD countries. Eurasian Economic Review, 2 (1).

OECD (1993). The measurement of scientific and technological activities: Proposed standard practice for surveys of research and experimental development (Frascati Manual).Paris:OECD

Porter, M. and Stern, S. (2000). Measuring the ‘ideas’ production function: Evidence from international patent output. NBER Working Paper, 7891.