Too Much of a Good Thing? The Economics of Investment in R&D (original) (raw)
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This paper devises an endogenous growth model with physical capital, human capital and product variety. Differently to previous works, innovation is subject to externalities associated to the duplication of research effort, as well as to R&D spillovers. We provide conditions for the existence of a unique feasible steady-state equilibrium with positive long-run growth. For appropriate parameter values, the transitional dynamics of the model is represented by a two-dimensional stable manifold. Numerical simulations show that the incorporation of duplication externalities significantly increases the ability of the model to fit the observed data.
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Two models where productivity growth is caused by spillovers from R&D are analysed using a sample of nine manufacturing industries in six large OECD-countries between 1979 and 1991. The first model is based on traditional productivity analysis where growth in R&D stocks causes productivity growth. The second model is based on the endogenous growth literature where the level of R&D expenditures is assumed to increase productivity growth. The empirical results indicate stronger support for the latter model. The pattern of spillovers is also investigated. The results suggest that spillovers from R&D exist within industries, both nationally and internationally. There is, however, little evidence of spillovers between industries. The empirical evidence further suggests that intra-industry spillovers are confined to industries that are relatively R&Dintensive. Finally, direct foreign investment seem to facilitate the diffusion of R&D results, but we do not find any effect on growth from R&D embodied in intermediate products.
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SSRN Electronic Journal, 2000
Beginning with Romer (1990), a first generation of endogenous R&D growth models with expanding variety or growing quality of intermediate inputs had a scale effect of R&D employment on productivity growth. C. Jones (1995) criticises this class of models on the ground that their prediction is widely at variance with the facts of R&D employment and productivity growth in the advanced countries over the last fifty years. He suggests a model which shares important features with Arrow's (1962) seminal paper on learning by doing. Growth is not endogenous, but, if population is growing, per capita output may persistently increase as a result of purposeful research effort, due to increasing returns to scale in the output sector. More recently, a second generation of endogenous R&D growth models has appeared, in which the scale effect is eliminated and the simultaneous expansion of intermediate goods variety and quality occurs under conditions that make steady-state productivity growth depend on the ratio between intensive R&D employment and total employment (Young (1998), Peretto (1998), Howitt (1999)). A unifying formal classification of the different types of R&D growth models is used in this paper to discuss how they face with the fact that not only R&D employment, but also the R&D employment share has risen dramatically in the advanced countries over the last fifty years. Depending on the model at hand, reconciling this fact with the facts of productivity growth requires different changes in the parameters that describe the 'production function of knowledge'. We try to characterise such changes and discuss their plausibility in the light of the literature on patents and productivity.
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Downloadable! This paper reviews the empirical literature on rates of return on R&D and interprets the economic significance of these estimates using a semi-endogenous growth model with a calibrated knowledge production sector. We analyse how R&D subsidies, a reduction ...
R&D Spillovers and Growth: Specialization Matters
Review of International Economics, 2005
We explore the relationship between openness and growth by taking a closer look at trade-related knowledge spillovers at the industry level. First, we estimate the relation between sectoral R&D expenditures, trade-related spillovers, and growth. Next, we incorporate these R&D linkages in a computable generalequilibrium model for the world economy.We simulate trade liberalization in the model with R&D spillovers and compare the effects on GDP in different regions with a non-R&D-based model simulation. We find that the GDP effects of trade liberalization are magnified considerably by R&D spillovers for some regionsnotably Japan and Southeast Asia. In other regions, such as China, the additional GDP effects are modest. These findings can be traced back to changing specialization and import patterns.
R&D Subsidies and Economic Growth
The RAND Journal of Economics, 1998
This paper presents an endogenous growth model in which some firms devote resources to developing higher quality products (innovative R&D) and other firms devote resources to copying these products (imitative R&D). Although consumers benefit from the knowledge created by both types of R&D activities, only innovative R&D subsidies lead to faster economic growth and imitative R&D subsidies actually lead to slower economic growth. A key assumption driving these conclusions is that R&D activities are subject to decreasing returns. When R&D activities are subject to constant returns, as is commonly assumed, the only equilibrium with both innovation and imitation is unstable. JEL Classification Numbers: O32, O41.