Empirical Analysis of an Augmented Schumpeterian Endogenous Growth Model

Abstract

This study conducts an empirical analysis of an augmented Schumpeterian endogenous growth theory using aggregate-level data from 1981 to 2017 for 31 OECD countries. Despite a considerable number of studies analysing endogenous growth, cross-country analyses utilising estimators robust to endogeneity-bias and controlling for the macroeconomic effect of institutions are still rare. In this paper, we employ a relatively consistent estimator to analyse an augmented neoclassical production function that links output per worker to capital accumulation, technological progress, and institutions. Our results from the extended system of generalised method of momentS estimation align with the mainstream consensus that capital accumulation and technological progress or innovation, in the form of R&D activities, determine the level of output per worker in the long run. But in addition, we find that effective institutions underlie the innovation effect. On average, the impact of R&D activities on output per worker is higher in countries with more effective institutions.