Efficiency of R&D incentives: A dynamic general equilibrium analysis

This study aims to explain the effects of Research and Development (R&D) incentives from macro and micro perspectives. We used two different methods to measure the efficiency of these incentives. In the first part of the study, a dynamic general equilibrium model is constructed. In this model, R&D is defined as a function in which labor and capital are used and endogenously affects Total Factor Productivity (TFP). The government provides R&D incentives only for labor and capital used for R&D production. These subsidies provided by the public sector were separated for labor and capital used in R&D and it was concluded that public incentives given to the labor produced more effective results for economic growth. The other method used in the study is an econometric approach. In this section, we applied the Panel Count Data model as the econometric method for 11 European countries for which we can access their data. As a result of the analysis for 11 European countries, we conclude that public R&D incentives have different effects on high-tech and low-tech sectors. In addition, another finding is that in low-tech sectors, the effect on patents mostly comes from R&D expenditures. As a result of the analysis for Turkey, it is concluded that public R&D incentives and patents have a U relationship.