The impact of mission-oriented R&D on domestic and foreign private and public R&D, total factor productivity and GDP

Thomas Ziesemer


We analyse the dynamic interaction of mission-oriented R&D expenditure stocks with domestic and foreign private and public R&D, total-factor-productivity (TFP) and gross domestic product (GDP) for seven EU countries, for which we have sufficiently long time-series of mission-oriented R&D data. We use the vector-error-correction (VECM) method. Permanent shocks on mission-oriented R&D increase total-factor-productivity and GDP, mostly because for the UK private R&D is increased or, for Belgium and Italy, public R&D is increased or, for Denmark, France, Germany and the Netherlands, both are increased. France has an initial phase where mission-oriented R&D has to be reduced first and expanded later to get good policy results. On average across periods and countries, a 1 percent increase of mission-oriented R&D leads to an additional 0.485% public R&D, 0.705% private R&D, 48.5% for TFP, and 0.56% GDP. We also show years of positive gains, the sums of discounted net present values, and the average yearly gains/GDP ratio. Mission-oriented R&D has high internal rates of return calculated from comparison of baseline and shock scenario comparison using VECM simulations until 2040. Heterogeneity limits the possibility to find a common model of long-term relations. For most countries we find that in steady states mission R&D reacts to foreign and domestic public R&D and increases TFP. TFP, foreign public and domestic private R&D have two-way causality relations.

Keywords: Total factor productivity, R&D, growth, cointegrating VAR, permanent policy shocks

JEL Classification: O11, O38, O47, O52

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