The document analyzes the impact of R&D expenditures on economic growth and country-of-origin perceptions using data from 25 OECD countries from 1983 to 2007. It finds that business sector R&D expenditures have a statistically significant positive impact on long-term GDP growth rates. Average years of education were also found to positively impact GDP growth, but only at the 10% significance level. Future research is recommended to further examine relationships between R&D investments, product quality, and how they influence "Made in" country perceptions and economic growth.

3. Theoretical Background Link between R&D investments and Economic Growth Romer (1990); Grossman and Helpman (1991); Lichtenberg and Siegel (1991); Spivack (2001); Zachariadis (2004) ; Sveikauskas (2007); Ulku (2007); Coe, Helpman & Hoffmaister (2008); Cocchia (2008); Link between R&D investments Product Quality and Competitiveness Amendola et al. (1992); Hall (1996); Klete & Griliches (1998); Brécard et al.(2006); Johansson (2007) Product Quality and the “Made in” feature Khacaturian & Morganosky (1990); Cordell (1991); Nes & Bilkey (1993); Schniederjans et al. (2004 );

4. Relationship between total R&D Expenditures & GDP per capita (2007)

6. Summary Statistics over time – Total Sample Source: OECD Economic Outlook database, OECD Science and Technology indicators, Barro and Lee (2000). The number of observations is 110. 25 25 25 25 25 Number of countries 1,71 1,78 1,75 1,94 2,19 Total R&D expenditures (GERD) % GDP 1,04 1,07 0,98 1,04 1,40 Business sector R&D expenditures (BERD) % GDP 6,75 6,53 9,03 8,68 8,19 Average years of Education (M+F) 23,02 23,19 22,23 23,83 23,19 Investment Ratio (%) 29,96 24,49 19,45 16,10 12,57 GDP per capita in PPP (thousands) 2002-2007 1998-2002 1993-1997 1988-1992 1983-1987 0,32 3,92 0,95 1,87 Total R&D expenditures (GERD) % GDP 0,07 2,98 0,81 1,08 Business sector R&D expenditures (BERD) % GDP 2,94 11,89 1,99 7,86 Average years of Education (M+F) 11,53 35,53 3,80 23,09 Investment Ratio (%) 4,25 46,95 8,56 20,58 GDP per capita in PPP (thousands) min max s.t. Mean

8. The Model We can derive the regression equation by taking first differences in order to remove the unobserved time-invariant, and the country-specific effects E(y it−s , Δ e it ) = 0 t = 3, . . . , T and s ≥ 2. E( Δ x it−s , Δ e it ) = 0 t = 3, . . . , T and s ≥ 2 The system GMM is obtained by level and first-differenced moment conditions. Blundell and Bond (1998) show that the system GMM estimator produces large increases in both consistency and efficiency. E(eit , Δ yit−1) = 0 t = 3, . . . , T, E(eit, Δ Xit−1, ) = 0 t = 3, . . . , T s ≥ 1.

9. Estimation Results for the system GMM estimator Investments in R&D Positive and Statistically significant ** Statistically significant at level 5% * Statistically significant at level 10% Average years of EDU positive but Statistically insignificant H o : instruments are uncorrelated with the error term NOT REJECTED Wald test indicates that all variables are s.s. at least 1% level (p-value 0.005) F(2, 18) = 7.29 Wald-test: EDU = BERDXGDP = 0 Sargan test of overidentifying restrictions (p-value) 0.032 2.54 0.180 ** Constant 3.45 0.078 ** Δ ln BERD % GDP (BERD) 0.48 0.068 Δ ln average years education (EDU) 5.33 0.365 ** Δ ln investment ratio (INV) 19.55 0.506 ** Lagged Δ ln GDP per capita, in const. PPP t-test Coefficient

10. Estimation Results Fixed effects results based on five year averages The fixed effects results show R&D in the business sector is positive and significant at the 5% level R 2 (within) = 32.97% No of groups : 21 No of observations: 92 4.64 9.061 ** Constant - 2.47 -0.510 ** ln EDU 3.37 0.976 ** ln BERD % GDP - 0.12 -0.444 ln Investment Ratio t-test Coefficient GDP per capita, in const. PPP Dependent variable: