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What promotes R&D? Comparative evidence from around the world

James R. Brown, Gustav Martinsson and Bruce Petersen ()

Research Policy, 2017, vol. 46, issue 2, 447-462

Abstract: R&D drives innovation and productivity growth, but appropriability problems and financing difficulties likely keep R&D investment well below the socially optimal level, particularly in high- technology industries. Though countries around the world are increasingly interested in using tax incentives and other policy initiatives to address this underinvestment problem, there is little empirical evidence comparing the effectiveness of alternative domestic policies and institutions at spurring R&D. Using data from a broad sample of OECD economies, we find that financial market rules that improve accounting standards and strengthen contract enforcement share a significant positive relation with R&D in more innovative industries, as do stronger legal protections for intellectual property. In contrast, stronger creditor rights and more generous R&D tax credits have a negative differential relation with R&D in more innovative industries. These results suggest that domestic policies directly dealing with appropriability and financing problems may be more effective than traditional tax subsides at promoting the innovative investments that drive economic growth.

Keywords: R & D, innovation; R & D tax credits; Financial markets; Intellectual property protection; Technological change (search for similar items in EconPapers)
JEL-codes: O16 O30 N20 M40 G18 H2 (search for similar items in EconPapers)
Date: 2017
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