What drives business research and development (R&D) intensity across organisation for economic co-operation and development (OECD) countries?

This paper empirically investigates the potential determinants of businesssector R & D intensity using a panel of OECD (countries for the period of 1975-2002 with data measured as five-year averages). Estimates using a system GMM estimator controlling for endogeneity show a high degree of persistence in business-sector R & D expenditures. Tax incentives for R & D have a significant and positive impact on business R & D spending regardless of the specification and estimation techniques. Furthermore, we find that expenditures for R & D performed by universities are significantly positively related to business enterprise sector expenditures on R & D indicating that public sector R & D and private R & D are complements. Direct R & D subsidies and the high-tech export share are significantly positively related to business-sector R & D intensity, but these effects are only significant using the first-differenced GMM estimator. The static fixed effects results show that countries characterised by strong patent rights appear to have higher R & D intensities, but this effect is no longer significant in the dynamic panel data model.