The influence of financial development on R&D activity: Cross-country evidence

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The financial environment affects the level of R&D activity of a country. Using the proxy measures of macroeconomic financial environment variables, we show that cross-country differences in R&D activity, including expenditures, researchers, and patents etc., are correlated with the stock market turnover ratio. In particular, we found that the relationship was in direct relation to R&D expenditures or the number of researchers but indirect in relation to R&D outputs such as patents. These results imply that finance structure of an economy could enhance R&D activity through providing efficient resource allocation function. Other proxy measures of the financial environment such as banking sector size or stock market capitalization are not found to be significant. The size of the finance industry does not seem to change the national portfolio toward more high-risk innovative sectors. Financial quality, not size, determines the level of R&D intensity. © World Scientific Publishing Co.
Publisher
World Scientific Publishing Co. Pte Ltd
Issue Date
2010-09
Language
English
Citation

REVIEW OF PACIFIC BASIN FINANCIAL MARKETS AND POLICIES, v.13, no.3, pp.381 - 401

ISSN
0219-0915
URI
http://hdl.handle.net/10203/99292
Appears in Collection
RIMS Journal Papers
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