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Examining The Extensive and Intensive Margins of Private Research and Development (R&D) Expenditure Growth in Singapore

Examining The Extensive and Intensive Margins of Private Research and Development (R&D) Expenditure Growth in Singapore

Using a panel dataset from the Agency for Science, Technology and Research’s (A*STAR) annual National Survey of Research and Development (R&D), this study examines the dynamics of Business Expenditure on R&D (BERD) growth in Singapore, at the overall economy level and by different firm archetypes, over two periods (2002-2010 and 2010-2018).

This study decomposes BERD growth into four components – (i) Within Effect, (ii) Entry Quality Effect, (iii) Exit Quality Effect, and (iv) Churn Effect. The Within Effect can be interpreted as the intensive margin of BERD growth and reflects changes in R&D spending by firms that already perform R&D. The Entry Quality Effect, Exit Quality Effect and Churn Effect can be interpreted jointly as the extensive margin of BERD growth, which reflects changes in R&D spending due to (i) quality changes in the composition of firms that perform R&D (caused by the entry and exit of firms), and (ii) the net change in the number of R&D-performing firms.

Since the 2009 Global Financial Crisis, overall BERD growth in Singapore has largely been weighed down by weaker extensive margins. Notably, there was a significant moderation in the Churn Effect, as the number of entrant R&D firms fell and the number of firms that stopped performing R&D increased. By contrast, the intensive margin of overall BERD growth remained resilient, easing only slightly during the period of 2010-2018 compared to the earlier period of 2002-2010.

The study also finds that government funding for R&D-performing firms has been supportive of positive outcomes, with government-funded firms exhibiting stronger BERD growth (supported by positive Within, Churn and Exit Quality Effects) than non-government-funded firms.

Overall, these findings highlight the complementary roles that the public and private sectors play in the R&D ecosystem, with public funding catalysing private R&D expenditure and strengthening private firms’ R&D capabilities over time. In order to drive BERD growth in the coming years, the Government will continue to encourage existing R&D-performing firms to deepen their R&D activities (i.e., intensive margin) and incentivise new firms to start performing R&D (i.e., extensive margin). Supported by the Government’s $25 billion investment under the Research, Innovation and Enterprise (RIE) 2025 Plan, private enterprises will continue to play an important role in accelerating Singapore’s transformation into an innovation-led economy.

The views expressed in this paper are solely those of the authors and do not necessarily reflect those of the Ministry of Trade and Industry (MTI), Agency for Science, Technology and Research (A*STAR), Economic Development Board (EDB), Enterprise Singapore (ESG), National Research Foundation (NRF) or the Government of Singapore.

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