Business Expenditure on Research and Development in New Zealand - future potential and future industries

Abstract

Studies of business expenditure on R&D (BERD) are important because BERD supports firms’ technological progress that is the only sustainable way to a nation’s long-term productivity growth, which is essential for its long-term international competitiveness. The gap between our BERD intensity – at 0.49% GDP and that of 1.53% for OECD nations taken as a whole – is large and this suggests New Zealand experiences substantial competitive disadvantages. To investigate these competitive disadvantages, in this study: (i) we update our previous estimates for the country-specific and firm-specific components of the BERD Intensity Gap; (ii) we re-estimate the gap and its components using estimates of industry-level purchasing power parities as a proxy for purchasing power parities for R&D input costs; and (iii) we report and discuss the industrylevel sub-structure of the gap components. In conclusion we recommend the use of the gap, its components, and their industry-level structure, as useful indicators to monitor changes in BERD intensity over time relative to other nations. We provide examples of such application in the context of recent policy initiatives in New Zealand. Our results demonstrate how the BERD Intensity Gap for New Zealand and other nations is dependent on estimates of industry-level prices for R&D inputs in nations. This underscores the vulnerability of nations which focus their R&D in a few areas. In this respect a nation’s international competitiveness due to BERD is itself influenced by the competitiveness of the business of performing R&D.