Enhancing Private Sector R&D Investment in OECD Countries: The Role of Government Funding

This study examines the effect of government funding on private-sector research and development (R&D) expenditure across 33 OECD countries from 2005 to 2019. Additionally, the analysis extends to subgroups of countries, including the EU-15, newly joined EU members, other European non-EU countries, and non-European OECD countries. To empirically assess this relationship, we employ both pooled ordinary least squares (OLS) regression and instrumental variable two-stage least squares (IV-2SLS) models. The findings indicate that government support fosters a complementary relationship with private-sector R&D expenditure, rather than a crowding-out effect. This suggests that both direct government funding and R&D tax incentives play a crucial role in boosting private-sector R&D investment, with the effects varying across different economic and institutional contexts. By offering a comprehensive cross-country perspective, this research highlights the differential effectiveness of R&D support mechanisms in OECD countries and contributes to a deeper understanding of how government funding can enhance private-sector R&D investment.