Cross-industry distribution of R&D investments and economic growth

This study empirically investigates the relationship between the cross-industry distribution of R&D investments and economic growth across 14 countries for the period from 1996 to 2013. Although countries can invest disproportionately in a handful of industries hoping to use their limited resources efficiently and boost economic growth, complementarity between industries calls for balanced investments. Using the Herfindahl-Hirschman Index as the measure of R&D concentration, we find an inverted U-shaped relationship between the concentration of R&D investment and economic growth. Some level of concentration may be good for growth; however, beyond a certain point, concentration has a negative effect on growth. Moreover, heavy investment in high-technology manufacturing industry alleviates this negative effect of concentration. The opposite holds for much investment in the service industry. Lastly, we find that the importance of diversification increases when countries advance, while developing countries can benefit from strategic concentration.