Trust and R&D Investments: Evidence from OECD Countries

Ndubuisi, Gideon (2019): Trust and R&D Investments: Evidence from OECD Countries.

Abstract

This paper contributes to the literature on the innovation effect of social trust by analyzing the mechanisms linking social trust and R&D Investments. High social trust level can ease firms’ credit constraints by reducing moral hazards and information asymmetries problems which make raising external capital difficult and expensive for firms. It can also reduce relational risks that expose firms to ex-post holdup or outright intellectual property expropriation. Using data from 20 OECD countries, I test these mechanisms by evaluating whether more external finance dependent and relational risks vulnerable sectors exhibit disproportional higher R&D investments in countries with high social trust level. The empirical results confirm that high social trust level encourages investments in R&D. Importantly, the results indicate that sectors which depend more on external finance and those sectors that are more vulnerable to relational risks experience a relatively greater increase in R&D investments in countries with high social trust. The results underline access to external credit and reduction in relational risks as causal pathways linking social trust and R&D investment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Social Trust, Innovation; R&D Investments; Relational Risks; Credit Constraints
• Subjects: A - General Economics and Teaching > A1 - General Economics > A13 - Relation of Economics to Social Values; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

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