Dissertation Archive, WMU Graduate College

Dissertation Defense

Candidate: Ashraf Galal Eid

Degree of: Doctor of Philosophy

Department: Economics

Title: Determinants of Aggregate R&D, Role of Fiscal Policy, and the Effects of Government R&D on Economic Growth

Date: Monday, August 9, 2004 1:30-3:30 p.m.
5302 Friedman

Committee: Dr. Eskander Alvi, Chair
Dr. Debasri Mukherjee
Dr. Kevin Corder

Abstract: This dissertation contains three essays on research and development (R&D): determinants, the role of fiscal policy, and the effect of government R&D on economic growth. The first essay is an attempt to study the determinants of R&D expenditure in both emerging and developed countries with special attention to patent rights protection and technology transfer. We extend the quality ladder model to examine the effects of patent protection and imitation on R&D. To test the empirical content, a panel data semiparametric model is applied that uses country level data from twenty-one countries, of which six are emerging, for the period 1981-1997. The main findings are: 1) patent protection helps R&D but overly burdensome protection can limit access to new innovations and thus slowdown the rate of research and development, and 2) technology transfer, through imports and FDI, has a positive and significant effect only if the country depends heavily on FDI and imported intermediate goods.

The second essay presents a simple model of fiscal policy and business investment in research and development. In the theoretical model we study the effect of four fiscal variables on business R&D: budget imbalance, taxes on income and profits, taxes on goods and services, and government productive expenditure. It is shown that -- contrary to the normal negative relationship between taxes on profits and private investment -- the effect of profit taxes on business R&D investment could be positive because of R&D tax credits. Also, budget deficits crowd out business R&D and taxes on goods and services reduce business R&D through their negative effect on the market size of high-tech products. On the empirical side, the fixed effects two stage least squares model, applied to a sample of 14 high-income OECD countries, shows the following effects on business R&D: 1) taxes on income and profits have the expected positive effect, 2) budget imbalance via the interest rate channels has a negative effect, 3) government capital expenditure has a positive effect, and 4) taxes on goods and services are not significant.

The third essay contains and empirical study to estimate the social rate of return to government and business R&D when the former is disaggregated into civil and defense R&D. Using a GMM method, we estimate a dynamic panel data model that consists of 13 high-income OECD countries. The results show that contrary to most empirical studies that report a social rate of return to total government R&D expenditure to be insignificantly different from zero, this paper finds that civil government R&D for general university funds have positive and significant effect on economic growth, while civil government R&D for health and environment programs is found to be insignificant. Defense R&D is found to have either insignificant or negative effect on economic growth. Finally, business R&D is found to have a positive and significant effect on GDP per capita growth in all specifications.

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