Impact of Research and Development Expenditures on Economic Growth: Evidence from Industrial Development in Pakistan and A Comparison from Developed Countries

Abstract

This study examines the impact of research and development (R&D) expenditures on economic growth, with a focus on industrial development in Pakistan and a comparative analysis with developed countries. Despite being the sixth most populous country, Pakistan faces significant challenges in achieving sustained growth. Using a panel least squares regression model, this study analyzes the data of eight countries over a period of 25 years, including Pakistan and seven G7 nations i.e. France, the United States, the United Kingdom, Germany, Japan, Italy, and Canada. The correlation results reveal that R&D expenditures positively and significantly impact GDP across these countries. The GDPs of the G7 countries are significantly higher to Pakistan, highlighting the potential for substantial economic gains through increased R&D investment. The model shows a high R² and adjusted R², explaining 88.79% of the variation in GDP, with significant predictors including research expenditures and the lagged GDP into R&D expenditure. These findings suggest that for Pakistan, increasing R&D expenditure could lead to notable improvements in GDP and overall economic performance. Recommendations to increase government allocation to R&D, focusing on key industries such as textiles, automobile, electronics, technological advancement and infrastructure, and implementing policies that encourage private sector investment in R&D. Additionally, enhancing academic research and providing a roadmap for policymakers to foster industrial and economic development in Pakistan.