A Study on the Optimal Ratio of Research and Development Investment in the Energy Sector: An Empirical Analysis in South Korea

• Main Authors: Juyong Lee, Youngsang Cho, Jungwoo Shin
• Format: Article
• Language: English
• Published: MDPI AG 2019-01-01
• Series: Energies
• Subjects: optimal ratio; research and development; energy industry; production function; delta method
• Online Access: http://www.mdpi.com/1996-1073/12/2/288

The necessity for energy research and development (ER&D) is increasing as greenhouse gases and climate change are becoming global issues. To support sustainable economic growth through ER&D, it is necessary to examine the optimal ratio of ER&D investment to total R&D investment to maximize economic growth. However, there are no studies on the appropriate level of ER&D in total R&D investment for economic growth. This study attempts to empirically estimate the optimal ratio of ER&D investment to maximize gross domestic product (GDP) in South Korea. We utilized the Cobb-Douglas production function for our econometric model and corrected the autocorrelation problem using the Cochrane-Orcutt iterative procedure. Our results showed that both, ER&D and non-ER&D have positive correlations with GDP. The optimal ratio of ER&D is derived as 13.23%, which indicates that the current ratio of Korean ER&D should be revised upward. Further, ER&D investment in the private sector needs to be increased to achieve the optimal ratio because the current statistics in Korea describes that private companies in the energy industry invest much less in R&D than the government. Based on the results, we suggest government strategies to enhance ER&D investment in the private sector as well as the public sector.