The impact of research and development on the economic growth of developed and emerging countries

Dissertation for Master of Business Administration Degree: Financial Management

Abstract:

Today, research and development expenses are very important in the process of development and progress of different societies. The only way for any organization to survive is to engage in continuous research and development, so investing in research and development is the key to economic growth for any country. This research examines the relationship between research and development on the economic growth of developed and emerging countries using panel data in the period of 2004-2010 for 50 countries that are divided into developed and emerging (developing) countries based on the United Nations Human Resource Development Index. The results of this research show that in the first, second and third models, there is a positive relationship between research and development investment and economic growth in developed and developing countries. The results of the estimation of the research model in the first, second and third models have shown that there is a negative relationship between government spending and economic growth. The results of the estimation of the research model in the first, second and third models have shown that there is a positive relationship between the intensity (accumulation) of physical capital and economic growth. The results of the estimation of the research model in the first model have shown that there is no positive relationship between stock market investments and economic growth. There is a negative relationship between private credit of banks and economic growth. There is a positive relationship between private credit of other financial institutions and economic growth. The results of the estimation of the research model in the second model have shown that there is a positive relationship between stock market investments and economic growth, but it is not statistically significant. There is a negative relationship between private credit of banks and economic growth. There is a negative relationship between private credit of other financial institutions and economic growth. The results of the estimation of the research model in the third model have shown that there is a positive relationship between stock market investments and economic growth, but it is not statistically significant. There is a negative relationship between private credit of banks and economic growth. There is a positive relationship between the private credit of other financial institutions and economic growth.

Keyword: human resource development index, research and development investment, government spending, intensity (accumulation) of physical capital, private credit of banks

) Introduction:

Continuous economic growth is mainly explained by changes in knowledge and technology and human capital, and research and development activities (R&D) [1] are also one of the main sources of knowledge and technology changes. is Therefore, most countries expand research and development activities in order to continue economic growth (Deen Mohammadi, Mostafa; Waziri, Alireza; Shahnazi, Ruholah; 2015, pp. 62-99). According to the definition of OECD[2], research and development means "constructive activities arising from a systematic foundation, the purpose of which is to increase human knowledge, social culture and use this knowledge in new applications". One of the characteristics of modern economic growth is the significant role played by technological change (Kanover, Onson, 2003, pp. 264-235) [3] and sustainable economic growth is the first priority of different nations, both developed and developing (Versak Liss, 2006, pp. 1083-1090) [4]. The 21st century has been described as the era of knowledge-based economy[5]. An economy based on scientific research and development. R&D activity is a well-organized process of knowledge creation, production, dissemination and application. Research and development activities lead to innovation in scientific technology, management scales and social and political systems. According to endogenous growth models[6], investment in research and development is known as the main engine of growth. The mentioned models admit that economic and institutional factors explain the way of technological progress. Endogenous growth models, such as those presented by Mankiw and others [7] and Romer [8], argue that human capital and the accumulation of knowledge resulting from education and knowledge creation are the main sources of long-term growth. Therefore, most of the studies and researches in recent years that have focused on economic growth and technological progress have assumed a prominent role for investment in research and development, which can be referred to the article by Greilichs [9] to the study by Maloney and Rodriguez-Clair [10].Since investment in research and development is one of the most fundamental elements in advancing knowledge, increasing productivity, and encouraging growth, any country that invests sufficient resources in R&D activities and efficiently engages in research and development activities has the potential to achieve desirable growth as a result of research and development (Wang, 2010, pp. 103-116)[11]. On the other hand, an important point is the existence of a technological gap between developing countries and developed countries, which is a significant part of the large differences in per capita income, which separates rich economies from poor ones. An important effect of technological gaps can be seen in the different investment levels of poor and rich countries in research and development activities and knowledge production. For example, in 1995, the Group of Seven countries spent 84% of global R&D expenditures, and the remaining 190 countries spent only the next 16%, and as a result, the same Group of Seven countries took 92% of the patents registered in the USPTO[12] (Kameny, 2010, pp. 1543-1554)[13].

1-2) Statement of the problem:

     The financial market is a place where financial assets are exchanged. Of course, with the complexity of exchange methods and tools at the national and international level, in many cases the word "place" does not find a meaningful meaning. Based on this, it can be said that the market is an institution within the framework of which all kinds of exchanges, including the exchange of goods, services and financial assets, are realized between suppliers and buyers (Rastad, 2010). Financial markets have a key role in equipping and directing the available funds in the economy towards the productive and industrial sectors and consequently improving economic growth. Economic development requires capital accumulation. The capital market, as one of the pillars of the financial market, plays a significant role in mobilizing financial and capital facilities for the economic growth and development of countries, and currently in many countries of the world, they are responsible for financing the credits needed by economic enterprises (Sanobar, 2016). The role and importance of the financial system in the process of economic growth and development of countries is such that the difference between developed and underdeveloped economies can be found in the degree of efficiency and effectiveness of their financial system (Kashani, 2010). The quantitative change of each variable during a certain period of time is called growth [14] (Mutosali, Mahmoud; 2012, p. 11). Growth is the long-term increase in production capacity in order to increase the total supply to meet the needs of the population (Todaro, Michael; 1942, p. 117). In fact, the economic growth of any country expresses the continuous growth of production, which in most cases is accompanied by an increase in population or usually with infrastructure changes (Kuzents, Simon; 1901, p. 11). It can be stated with certainty that no economic system has been organized throughout history, unless the economic growth and prosperity of all its economic sectors for more production is one of its goals (Yousfi, Ahmad Ali; 1386, p. 309). 10). In other words, research and development is the process of transforming ideas into new products and improving existing products. These productions are related to the benefits to the final consumer or related to the technologies of the production process. The basic role of research and development in economic growth is to such an extent that it is mentioned as an important variable in the economy (Jeffrey [16], 1989). The importance of research and development is such that countries are divided into developed or underdeveloped based on the ratio of research budgets to gross national income. Research and development costs, in addition to stimulating the economic growth and development of the society, also increase the profit of the company (Dehghani, Ali; Khordmand, Kamran; Abdi, Mohammad; 2016, pp. 1-2). Today, due to the fact that research and development activities are the main base of innovation and continuously provide the ground for new demands, these demands have become the driving force for investment and guaranteeing the growth and prosperity of the economy. Therefore, research is a necessary thing and one of the necessary elements for economic growth and development, so that it is necessary to enter the global markets and the development of advanced industries in every country to focus on research, both fundamental and applied (Lawrence [17], 1998). According to the mentioned materials and the relationship between the financial market, research and development and economic growth, we want to address the impact of research and development[18] on economic growth in developed and emerging countries.