THE EFFECTS OF INNOVATION POLICIES ON BUSINESS R&D: A CROSS-NATIONAL EMPIRICAL STUDY

This paper examines the effect of three major national innovation policies (patent protection, research and development (R&D) tax incentives, and government funding of business R&D) on business R&D spending. Unlike previous work, we also consider the effect of openness to international trade. We use data from nine OECD countries (Australia, Canada, France, Germany, Italy, Japan, Spain, UK, and USA) in 1985-1995. Our results show that all three innovation policies play a significant role in stimulating business R&D. Enforcement of patent right matters most to business R&D spending. In addition, R&D performed by the government has a positive effect on business R&D, whereas R&D by the higher education sector has a negative impact on business R&D. We also find modest empirical support to the positive role of openess to international trade in business R&D investment.