Academic journal article E+M Ekonomie a Management

Importance of R&d Expenditure for Economic Growth in Selected Cee Countries

Academic journal article E+M Ekonomie a Management

Importance of R&d Expenditure for Economic Growth in Selected Cee Countries

Article excerpt

Introduction

Research and development (R&D) is of fundamental importance in the creation of knowledge, products and technologies (Solow, 1956; Jones, 1995; Kohler et al., 2012; OECD, 2012; Szarowska, 2016; 2017). Generally, governments have three main instruments for financing R&D (own R&D, direct funding and indirect funding), each of which has advantages and disadvantages from the perspective of economic theory (David et al., 2000). The financial crisis prompted many governments to introduce tough fiscal consolidation measures and to prioritize other issues over R&D. However, Hud and Hussinger (2015) note that to prevent firms from reducing their R&D expenses and to maintain national R&D capacities, policymakers in many countries reacted immediately to the crisis and increased the public R&D budget.

Many studies have investigated the determinants of economic growth. The survey of Petrakos and Arvanitidis (2008) identified a number of important determinants of economic dynamism at the global scale. Among others, it was found that the determinants of economic dynamism do not have the same influence in advanced and less advanced countries. Central and Eastern European (CEE) countries form a heterogeneous group of countries and their economic maturity as well as R&D intensity have been very low after the fall of communism. These countries have faced transition processes from state-run and closed economic systems to developing and competitive open market economies over the last years. One of the key elements of the growth strategy for CEE countries is creating a knowledge-based economy, of course, with governmental support. As attention to this process and to the role of R&D public support is very limited in published papers, the article focuses on this topic.

The goal of this article is to quantify the effect of R&D expenditure on economic growth in eight selected CEE countries in the period 1995-2016. The article is organized as follows. The next section presents theoretical background and a brief literature review. The following chapter introduces methodology and data. The empirical part is focused on basic forms of funding R&D and testing the effect of R&D expenditure on economic growth. The conclusion summarizes the main findings.

1. Literature Review and Theoretical Background

The starting point of many growth concepts is connected with model of Solow (1956), known as the Solow-Swan model which considers long-run economic growth. This model, based on neoclassical production function of the Cobb-Douglas form, is one of the first that considered the impact of technological change on economic growth. The model implies that changes in output (income) per capita or per worker (output and income and population and labour force are synonymous in the model) depend on changes in capital stock (resulting both from investment and capital depreciation), changes in population, and the income share of capital. The used functional relationship can be written as:

[Y.sub.t] = f([A.sub.t], [K.sub.t], [L.sub.t]) (1)

In equation (1), Y is output, t is the time, K means the capital input, L is the labor input, A denotes the total factor productivity (TFP), which captures the non-inclusive effects, among which technological progress is especially significant factor. The Solow-Swan model recognizes the significance of the positive impact of technology on growth, but it is considered exogenous.

Due to the global macroeconomic disbalances of the 1970's, economists started to focus primarily on business cycle fluctuations and the research turned away from the exogenous models towards endogenous growth models. The development of endogenous growth theory has provided many new visions into the sources of economic growth. Romer (1986) identified R&D as the major component of economic growth, and he based endogenous growth theory on investment in R&D capital. …

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