The causality relationships between FDI and R&D in European Union

Abstract

Technological development and R&D activities are accepted as one of the factors of basic production in endogenous growth theories. There has been an increasing interest towards R&D on the level of both firm and country. Moreover countries regard FDI as an important element which increase R&D activities. Although there are numerous studies which investigate relationship of both FDI and R&D on macroeconomic variables such as economic growth, employment and export; the number of studies which investigate the relationship between FDI and R&D is quite few. The aim of this study is to analyze relationships between FDI and R&D in the example of EU15 and EU27. For this aim, 19962009 period data of mentioned countries were considered and dynamic panel causality testing was done. According to the findings obtained from empirical test made in the study, there is one-way causality relationship among EU15 and EU 27 countries from FDI towards R&D. This finding points out to the existence of complementary relationship between FDIs and R&D for EU.