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On the role of public policies and wage formation for private investment in R&D: a long-run panel analysis

Tim Buyse (UGent) , Freddy Heylen (UGent) and Ruben Schoonackers (UGent)
(2015)
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Abstract
This paper studies the drivers of business funded and performed R&D in a panel of 14 OECD countries since 1981. More specifically, we investigate the e↵ects of public R&D related policies and wage formation. Following Pesaran (Econometrica, 2006) and Kapetanios et al. (Journal of Econometrics, 2011), our empirical strategy allows for cross-sectionally correlated error terms due to the presence of unobserved common factors, which are potentially non-stationary. We find that tax incentives are effective. Public funding (subsidization) of R&D performed by firms can also be e↵ective if subsidies are not too low, neither too high. R&D performed within the government sector and within institutions of higher education is basically neutral with respect to business R&D. We find no evidence for crowding out, nor for complementarity. Using an indicator for wage pressure developed by Blanchard (Economic Policy, 2006), we find that wage moderation may contribute to innovation, but only in fairly closed economies and in economies with flexible labour markets. In highly open economies and economies with rigid labour markets rather the opposite holds. In these economies high wage pressure may enhance creative destruction and force firms to innovate as competitive strategy. Our results show that a careful treatment of the properties of the data is crucial.
Keywords
wage formation, panel cointegration, R&D, technology policy

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MLA
Buyse, Tim, Freddy Heylen, and Ruben Schoonackers. “On the Role of Public Policies and Wage Formation for Private Investment in R&D: a Long-run Panel Analysis.” 2015 : n. pag. Print.
APA
Buyse, Tim, Heylen, F., & Schoonackers, R. (2015). On the role of public policies and wage formation for private investment in R&D: a long-run panel analysis. FEB Working Paper.
Chicago author-date
Buyse, Tim, Freddy Heylen, and Ruben Schoonackers. 2015. “On the Role of Public Policies and Wage Formation for Private Investment in R&D: a Long-run Panel Analysis”. FEB Working Paper.
Chicago author-date (all authors)
Buyse, Tim, Freddy Heylen, and Ruben Schoonackers. 2015. “On the Role of Public Policies and Wage Formation for Private Investment in R&D: a Long-run Panel Analysis”. FEB Working Paper.
Vancouver
1.
Buyse T, Heylen F, Schoonackers R. On the role of public policies and wage formation for private investment in R&D: a long-run panel analysis. FEB Working Paper; 2015.
IEEE
[1]
T. Buyse, F. Heylen, and R. Schoonackers, “On the role of public policies and wage formation for private investment in R&D: a long-run panel analysis.” FEB Working Paper, 2015.
@misc{6931370,
  abstract     = {This paper studies the drivers of business funded and performed R&D in a panel of 14 OECD countries since 1981. More specifically, we investigate the e↵ects of public
R&D related policies and wage formation. Following Pesaran (Econometrica, 2006) and Kapetanios et al. (Journal of Econometrics, 2011), our empirical strategy allows for cross-sectionally correlated error terms due to the presence of unobserved common factors, which are potentially non-stationary. We find that tax incentives are effective.
Public funding (subsidization) of R&D performed by firms can also be e↵ective if subsidies are not too low, neither too high. R&D performed within the government sector and
within institutions of higher education is basically neutral with respect to business R&D. 

We find no evidence for crowding out, nor for complementarity. Using an indicator for wage pressure developed by Blanchard (Economic Policy, 2006), we find that wage moderation may contribute to innovation, but only in fairly closed economies and in economies with flexible labour markets. In highly open economies and economies with rigid labour markets rather the opposite holds. In these economies high wage pressure may enhance creative destruction and force firms to innovate as competitive strategy. Our results show that a careful treatment of the properties of the data is crucial.},
  articleno    = {2015/911},
  author       = {Buyse, Tim and Heylen, Freddy and Schoonackers, Ruben},
  keywords     = {wage formation,panel cointegration,R&D,technology policy},
  language     = {eng},
  pages        = {55},
  publisher    = {FEB Working Paper},
  title        = {On the role of public policies and wage formation for private investment in R&D: a long-run panel analysis},
  year         = {2015},
}