Who’s doing who? Growth of sales, employment, assets, profits and R&D entangled in a curious five-way love triangle

Understanding causal relationships among key economic variables is crucial for policy makers, who wish to e.g. stimulate private R&D growth. . To this end, we applied a technique recently imported from the Machine Learning community (Structural Vector Autoregressions (SVARs) identified using Independent Components Analysis (ICA)) to a set of the world’s largest R&D investors. Our analysis highlights the key role of sales growth, rather than profits growth, in stimulating R&D growth. R&D growth appears at the end of the causal ordering of the growth process. Our results suggest that policies to increase private R&D would do better to target sales rather than profits.

Authors:

COAD Alexander, GRASSANO Nicola