The Determinant of R&D Intensity

Topics: Research, Gross domestic product, Regression analysis Pages: 33 (8986 words) Published: May 17, 2013
MSCI760 Research Paper

What Are the Determinants for the R&D Intensity?

By: Ayman Elswefy University of Waterloo




SECTION I: ABSTRACT The objective of this research paper is to explore an answer to this question: What are the key determinant factors behind low R&D intensity? The approach utilized is examining all possible variables that could affect R&D intensity in the developing and developed economies, and then screening them out so as to reach a conclusion. The model is built using a multiple linear regression technique of all the potential independent variables against the dependant variable which is R&D intensity (GERD). The research findings concluded that the key determinants to R&D intensity are the number of researchers/million population, the number of patent applications, and the share of business in financing R&D activities.


In this era of the twenty first century, and looking closely at the world economies, it can be clearly seen that the gap between the rich and the poor in each specific economy is widening. This same gap is also expanding among different economies. In simpler terms, this means that everyday poor economies are becoming poorer while rich economies are becoming richer. One of the major reasons for economic development and growth according to many economic theories, including the multifactor productivity growth theory, is the investment in research and development (R&D). This is because output nowadays is not a function of labor and capital only, but it rather became a function of information as well.


Hence arises the question of R&D’s definition. The Organization for Economic Cooperation and Development (OECD) states that R&D comprised all the creative work undertaken on a systematic basis in order to increase the stock of knowledge (including knowledge of man, culture and society) and the use of this knowledge to devise new applications. Most science and technology literature agree that R&D has three main classifications. This classification is into basic research, applied research and development (commercial) research. Basic research is the theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view. Applied research is also original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific practical aim or objective. Experimental development is systematic work, drawing on existing knowledge gained from research and/or practical experience, which is directed to producing new materials, products or devices, to installing new processes, systems and services, or to improving substantially those already produced or installed. The most commonly accepted measure used for research and development is R&D as a percentage of national gross domestic product (GDP). It is used frequently as a standard for comparing nations. It actually shows how much a given nation is willing to invest of its total output or its total income into research and development activities. This measure of R&D of any given country is referred to as the country’s R&D intensity, which is the dollar amount of R&D as a percentage of a given country GDP in the same year. It is also referred to as GERD or gross expenditure on R&D in percentage terms of the GDP. The main motive for writing this paper has been the wide disparity discovered among the GERD of three completely different economies: Egypt, Turkey and Germany. Egypt spends


0.23% of its GDP into R&D, and Turkey spends 0.8% of its GDP into R&D while Germany allocates 2.3% of its GDP into R&D. Thus, this paper will explore the real reasons behind low R&D activities in selected nations. One key observation according to OECD database is that research and development amounted to 2.3% of GDP for the whole...
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