Riding the crypto wave: How does country R&D spending respond?

Author's Department

Economics Department

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https://doi.org/10.1108/GKMC-09-2023-0321

All Authors

Mina Sami, Wael Abdallah

Document Type

Research Article

Publication Title

Global Knowledge, Memory and Communication

Publication Date

1-1-2024

doi

10.1108/GKMC-09-2023-0321

Abstract

Purpose: This paper aims to explore how the expansion in cryptocurrency users affects the country's research and development (R&D) investments. Design/methodology/approach: The analysis covers 53 countries over the period 2019–2022. The empirical methodology implements an instrumental variable approach to overcome endogeneity and omitted variable bias issues. In particular, this study introduces novel instruments developed from Google data, specifically related to trends observed in the cryptocurrency markets. Findings: The results show that macroeconomic and institutional factors, as well as technology infrastructure affect the country's R&D expenditure, as previously noted in the literature. The country's R&D spending significantly responds to cryptocurrency expansions. Conspicuously, each 10% increase in cryptocurrency market users boosts the ratio of R&D to GDP by 1.35%. The countries that have imposed an adequate taxation policy on cryptocurrency gains experienced more improvement in their R&D budget, in contrast to those that forced aggressive tax brackets or did not apply adequate policies. Cryptocurrency dynamics affect both religiously regulated and nonreligious countries. Originality/value: This study has three main contributions. First, it introduces the role of the cryptocurrency market as one of the leading global trends to affect the countries’ R&D budget. Second, this paper documents the importance of forcing an adequate tax policy on cryptocurrency capital gains. Third, the results of this paper serve as guidelines for governments to face the challenges raised by the cryptocurrency market.

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