The Effect of Financial Development on R&D Activities in E7 Countries

Abstract

In this study, the causality relationship is tried to determine between financialdevelopment level and technology activities in the countries defined as E7 byemploying panel data analysis. Domestic credit to private sector by banks to GDP andmoney supply (M2) to GDP are used as financial development indicators. The results ofthe analysis performed by using 2001-2013 period data show that both the financial variables do not have any significant effects on the number of patent applications byresidents and the articles published in scientific journals, and M2 money supply doesnot have any significant effect on the percentage of high-technology exports to manufactured exports. Particularly, the findings reveal that financial developmentaffects R&D expenditures positively with a strong proportion. As a result, it can be saidthat financial development increases R& D expenditure, number of researchers in R&Dindustries and high technology-based export, but it does not have effects on the outputsof these activities.