Determines of Sectoral R&D Investment in the UK: A Dymanic Panel Approach

The study estimates the determinants of R&D expenditure in the UK by using sectoral data of eight large scale industries over time. We examined both traditional and exceptional however empirically plausible determinants of R&D using two alternative dynamic models. Pooled OLS, the Fixed Effects and the Random Effects models are used for estimation. We find that the size of R&D expenditure in the UK is smaller than many other industrial countries.. The largest amount of R&D expenditure in the UK, takes place for ‘machineries’ industry followed by ‘communication equipment’ and ‘post and telecommunication’ industries. Estimated results demonstrate that the market size, ratio of skilled to unskilled workers, and macroeconomic policies significantly affect R&D investment in the UK. Working hours of low, medium and high skilled workers’ significantly affect the R&D expenditure with different size effects. We also find that R&D expenditure is an industry specific phenomenon.