Comparison of Sectoral Performance of R&D Expenditures: Analysing Innovation Based Economic Growth

This study is testing the sectoral (for business enterprise sector, government sector, higher education sector and private non-profit sector) performance of Intramural R&D expenditures (as a proxy of innovation) for Europe-28 during 2000 and 2017 with VAR technique. Data is gathered from Eurostat science-technology and innovation database. Also the causality between economic growth (annual % GDP) and R&D expenditures (total all sectors) is examined with Hatemi-J et al. (2015) panel asymmetric causality test that takes into account structural breaks which cause positive or negative shocks (instabilities) and different reactions of agents to them. According to empirical results there is a two-way causality between innovation and economic growth; variance decompositions and the impulse-response functions indicate that business enterprise sector contributes the most to the innovation and economic growth and the most endogenous one is private non-profit sector. So it could be said that for Europe-28, the hypothesis of innovation based growth is accepted.