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Effect of changing business R&D expenditure mix on productivity of the South African national system of innovation

J. Marire

Published 2021 in African Journal of Science Technology Innovation and Development

ABSTRACT

The paper examines the effect of the sharp reallocation of business R&D expenditure from experimental research to applied research, since the global financial crisis, on the productivity of the South African national system of innovation (NSI). Business R&D expenditure declined sharply, without reversal, which suggests structural change. The paper applies linear regression models to data on trademarks and patents obtained from the World Intellectual Property Office and business R&D expenditure obtained from the Human Sciences Research Council, South Africa, for the period 2004–2018. The paper finds that reallocation of R&D expenditure from experimental to applied research had detrimental effects on the productivity of the NSI. Counterfactually, reallocation of R&D spending from experimental research to basic research had positive effects on innovation performance. The paper also establishes structural change in the innovation-business R&D spending regime. Policymakers, through tax incentives and nudging, should incentivise reallocation of business R&D spending towards basic research, while adjusting downwards the allocation to experimental and applied research until they reach their optimal levels. Discovery of structural change in the innovation-business R&D expenditure regime, the identification of sub-optimality in business R&D spending allocation, and identifying distorted incentive structures, all bring new knowledge to scholarship on the national system of innovation.

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