Endogenous Regional Development in Romania. A Knowledge Production Function Model

Results from research - development and innovation sector, embodied in capital, are an undisputed factor of economic growth, included in most macroeconomic models. Drawing on the New Growth Theory that states the importance of R&D in all economic and social domains, as well as its key role in endogenous development, this paper is aiming to assess the nature and the impact of technological progress on the development of Romanian regions in recent years. We try to capture R&D’s influence on regional economic growth by means of a knowledge production function model that employs county level data for the period 2001 to 2011. Our main finding is the positive and significant, although relatively small, contribution of technical progress (as captured by R&D expenditures) to regional GDP growth in Romania. This calls for improved regional research and development strategy, able to stimulate balanced territorial distribution of R&D and innovation activities, as well as a closer link with the business sector, in order to take advantage of the economic growth potential of regional R&D activity.