A Contribution to the Explanation of the Long-Term Path of Growth in Uruguay: The Role of Risk Aversion, ICT, and Innovation

Abstract

During the last five decades, the Uruguayan economy has shown evidence of decline, particularly in terms of GDP per capita at PPP, relative to knowledge-based economy countries. This paper examines - in an attempt to try to contribute to a better understanding of this phenomenon -, three main points. These are: What are the determinants of innovation?; What are the links between innovation and TFP?; and, What variables explain the growth of firms in Uruguay? The use of ICT (in positive) and RISK (in negative) explain the determinants of innovation dynamism in Uruguay. RISK - a variable usually non-existent in models for developed countries - is taken as a proxy of the risk aversion attitude of the entrepreneur and plays a severe negative influence on innovation. Process innovation has a positive effect on the explanation of the TFP, and the growth of firms is explained not only by labor or capital (human and physical), but also depends positively on the use of ICT, and negatively on RISK.