Impact of Good Governance on R&D Intensity of Selected Developed and Developing Countries

Research & development and technology progress cause productivity increase, enhancement and mobility of production factors and more variety in products. The important question is why some countries assign a higher percentage of their GDP to research and development? Good governance will cause increase in research and development costs to the Gross Domestic Product by providing desirable institutional framework. The main objective of this study is to evaluate the effect of governance on R&D intensity by using the data of the selected developed and developing countries over the 1996-2011 periods. The relationships between variables estimated by using the generalized methods of moments (GMM). As well as the net flow of foreign direct investment to GDP ratio, an indicator of human capital, industry value added sector to GDP ratio, imports of goods and services and abundance of natural resources are considered as control variables. Results obtained from this study show that improvement of the governance index has a positive and significant effect on the research and development intensity in both studied countries. The estimated coefficients of the net foreign direct investment to GDP ratio variable and human capital are positive and significant in both groups. However, the estimated coefficients of the industry value added sector to GDP ratio is positive and significant in developed countries and negative insignificant for developing countries. As well as the ratio of imports of goods and services have negative and insignificant impact for both studied countries and The coefficient of resource abundance index is positive and significant in developed countries and negative insignificant for developing countries.