What Determines Industrial R&D Expenditure in the UK?

The purpose of this paper is to try and identify some of the factors behind the comparatively poor R&D performance of the UK in the 1990s, a decade when R&D intensity in the business sector declined consistently. We estimate an econometric model of R&D expenditure using a panel of UK manufacturing industries. Our results highlight the importance of industry characteristics such as sales and profitability, product market competition, macroeconomic factors such as real long-term interest rates and the real effective exchange rate, skilled labour, and the composition of R&D expenditure and funding. A rise in either the share of R&D funded by the government or the share of R&D undertaken by foreign firms is found to have a significant positive impact on the aggregate level of R&D expenditure.