Impact of Research and Development on Economic Growth: Evidence from European Industrial Sector

The main objective of this thesis is to analyze and estimate the impact of research and development (R&D) on the economy of the EU. The impact of Labour Force and Gross Fixed Capital Formation are also investigated alongside. Using Ordinary Least Squares method and data from 1993 to 2013, the results show that R&D in the form of Gross Expenditure on R&D in the EU plays a positive significant role in economic growth as well as the other factors; labour force and gross fixed capital formation. Graphical analysis of factors that influence R&D in member states show that the R&D efforts and intensities are very dissimilar. Based on these, this paper recommends a two-prong approach by the EU to increase R&D and Innovation intensity by focusing on increasing R&D intensity in both private and public sectors of individual member states. Apart from governments providing more fiscal support for R&D, the EU is advised to introduce a more detailed R&D scoreboard which will cover both private and public sectors of member states to highlight the real situation of R&D in the Union. This paper concludes that the EU 3% target of R&D intensity by the year 2020 is only possible if they will focus more on increasing the intensity as recommende