NATIONAL EXPENDITURE ON R&D AND INTERNATIONAL COMPARISON OF PRODUCTIVITY

A higher national expenditure on research and development (R&D) may lead to a higher level of productivity in the national economy because innovations can improve overall efficiency in production by increasing output per worker. Unlike other empirical studies which suggest the positive impact of R&D expenditure on productivity but are often the result from the firm level or the industry level, this paper investigates a positive correlation between R&D spending and productivity using the 2019 national data for the top 25 countries ranked by R&D expenditure. The paper focuses on the relationship between international values of total factor productivity (TFP) derived by the Cobb-Douglas production function and each nation’s investment in gross domestic expenditure on R&D per capita population. This research finds that the correlation between TFP and per capita R&D expenditure is about 70%, supporting the positive impact of R&D on national productivity. Furthermore, the correlation is improved when compared with lagged data, implying the R&D expenditure affects future productivity, rather than the current.