THE RELATIONSHIP BETWEEN FINANCIAL DEVELOPMENT AND R&D EXPENDITURES: A PANEL DATA ANALYSIS

The aim of this study is to investigate the effects of financial development on R&D expenditures in India, Turkey, China, Brazil, Indonesia, Russia and Mexico as defined E7 countries for the period 2001-2013 by applying panel data analysis. R&D expenditure to GDP is used as a R&D indicator. Domestic credit to private sector to GDP and money supply (M2) to GDP are used as financial development indicators. Pedroni co-integration test result shows that there are long run relationships between R&D expenditures and financial development indicators. According to Panel FMOLS method results, a one percent increase in M2 to GDP will bring about a 0,41 percent increase in R&D expenditures, and a one percent increase in domestic credit to private sector to GDP will bring about a 0,25 percent increase in R&D expenditures in the long run. When an evaluation is made based on the findings, it is seen clearly that the level of financial development in the E-7 countries has a positive contribution to R&D expenditure