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The Negative Impact of Uncertainty on R&D Investment: International Evidence

Yuchen Lin (), Daxin Dong () and Jiaxin Wang ()
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Yuchen Lin: School of Law, Southwestern University of Finance and Economics, Chengdu 611130, China
Daxin Dong: School of Business Administration, Southwestern University of Finance and Economics, Chengdu 611130, China
Jiaxin Wang: School of Business Administration, Southwestern University of Finance and Economics, Chengdu 611130, China

Sustainability, 2021, vol. 13, issue 5, 1-21

Abstract: Previous studies have not provided consistent conclusions regarding the impact of uncertainty on research and development (R&D) investment. While most of the previous literature has focused only on one or a small group of countries, this study examines the effect of uncertainty on R&D on the basis of a sample covering 109 countries from 1996 to 2018. The country-level uncertainty is measured using the “World Uncertainty Index”, which has recently been developed by Ahir et al. (2018). By estimating a panel data fixed-effects regression model, it is found that uncertainty has a significantly negative impact on R&D investment at the country-level aggregate scale. We also find that uncertainty depresses the number of R&D personnel and patent applications, although the effect on R&D personnel is not statistically significant. These findings imply that high uncertainty poses a considerable threat to global innovation and technological progress. Heterogeneity analyses across different country groups demonstrate that, although the impact of uncertainty on R&D is not statistically significant in some country groups, its effect is always negative and no positive effect is observed.

Keywords: uncertainty; world uncertainty index; R& D investment; patent application (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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