Exploring The Relationship Between R&D And Productivity: A Country-level Study

Research and Development (R&D) has been considered a source of growth in productivity starting from Schultz (1953). Since then, significant research has studied this relationship at the firm, industry and country level. However, at the country level, most of the empirical studies assessing the R&D-productivity relationship often fail to consider the possible simultaneity of these variables. Do more productive countries invest more on R&D or does the higher level of R&D investment that leads to higher levels of productivity? Do both relationships occur at the same time? Using a 65-country panel for the time period of 1960- 2000, this paper provides evidence that the relationship is mainly based on investment in R&D and not the reverse.