THE RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENTS AND R&D EXPENDITURES: THE CASE OF G7 COUNTRIES

Abstract

Foreign Direct Investments (FDI) are an important and indispensable investment element, particularly for economic growth and development. This is because FDI provides many advantages to the countries such as capital, employment opportunities, knowledge and technology accumulation, and technical knowledge management. For this reason, countries compete with each other to increase the FDI that is directed towards them. At this point, ?what are the economic elements in which FDI interacts?? is a question that needs to be investigated. This study discussed the relationship between FDI and research and development (R&D) expenditures, which provides information and technology accumulation for economies, in the G7 countries (Canada, France, Germany, Italy, Japan, UK, USA) during the 1981-2014 period. It has been concluded that FDI has a one-way relationship to R&D expenditures in the current study used second generation panel causality analysis. Results indicate that foreign direct investments in developed countries are an effective policy element on R&D expenditures.