Analyzing Regional Macroeconomic Effectiveness of R&D Investment and Government Subsidies

This study empirically analyzes the impacts of regional R&D investment and government subsidies on regional economic growth and economic disparities between capital and non-capital regions, by utilizing regional yearly panel data. In particular, this study introduces structural vector auto-regression(SVAR) model based on conditional convergence of neoclassical growth theory, considering econometrical issues related to conventional growth regression analyses. The study finds that the increase in R&D investment of non-capital areas measured by its ratio to GRDP accelerates regional economic growth and mitigates the economic disparities between capital and non-capital areas. However, government R&D subsidy to those regions shows no empirically significant effect on regional economic growth or economic disparity between capital and non-capital areas. On the aspects of reducing regional disparity between capital and non-capital area, this study’s empirical finding is an indicative of the existence of less ‘opportunity cost-effective’ portions in government R&D subsidy programs, and thus further micro-level analyses on the policy effectiveness of government R&D subsidy programs is required.