PUBLIC AND BUSINESS RESEARCH AND DEVELOPMENT EXPENDITURES AND ECONOMIC GROWTH IN EU: A PANEL DATA ANALYSIS

Theoretically, for achieving long term economic growth the amount of investments in research and development (R&D) is highly important. Within the Europe 2020 strategy, research, development and innovation are key policy components of the EU strategy for economic growth. The European Commission invites the member states to allocate 3% of GDP to R&D, with 2/3 realized by the private spending. Therefore, it is interesting to focus not only on the amount of R&D but also on its composition. The purpose of the study is to assess the effect of private and public research and development expenditures on the economic growth in European Union countries. The dynamic panel for 28 EU countries for time period 2004-2014 was estimated using Generalized Methods of Moments (GMM), based on a production function approach. Main findings suggest statistically significant effect of private R&D intensity on GDP per working population growth. The short run partial elasticity coefficient of private R&D varies in the range 0.02-0.04 (depends on model specification and subsample). The log run partial elasticity coefficient of private R&D varies in the range 0.04-0.12 (depends on model specification). Statistical significance of public R&D is dependent on model specification. Insignificant effect of domestic R&D in the business sector is not surprising result, the same conclusion dominates in empirical literature. Conclusions from empirical work suggest that policy in EU countries should put more focus on the distinction between private and public R&D, and governments should stimulate private R&D.