Abstract
This paper analyses the returns to publicly performed R&D investments in 22 OECD countries. We exploit a dataset containing time-series from 1963 to 2011 and compare the estimates of different types of production function models. Robustness analyses are performed to test the sensitivity of the outcomes for particular specifications, sample selections, assumptions about the construction of R&D stocks, and variable definitions. Analyses based on Cobb–Douglas and translog production functions mostly yield statistically insignificant or negative returns. In these models we control for private and foreign R&D investments and the primary production factors. Models including additional controls, such as public capital, the stock of inward and outward foreign direct investment, and the shares of high-tech imports and exports, yield more positive returns. Our findings suggest that publicly performed R&D investments do not automatically foster GDP and TFP growth in production function models. Furthermore, our estimates suggest that economic returns to publicly performed R&D seem to depend on the specific national context.
Highlights
Technological progress is the ultimate driver of productivity growth and of modern economic growth
Our set of analyses suggests that differences in the estimated returns to public Research and development (R&D) investments can be mainly attributed to the use of different types of models
This paper investigates the returns to publicly performed R&D investments by means of a cross-country macro-economic analysis
Summary
Technological progress is the ultimate driver of productivity growth and of modern economic growth. Formal growth theory explicitly modelled technological progress only from the late 1980s onwards, long after research and development (R&D, one of the main sources of technological progress) had been integrated into the production function by Griliches (1979). In the field of “endogenous growth theory” that emerged from formalizing the insights about the relationship between technological progress and economic growth, attention has been focused on the interactions between technology, physical capital and human capital (e.g., Romer 1986, 1990; Lucas 1988). Research and development (R&D) is one of the main sources of technological progress, and it is performed both by private companies and government institutions. There is historical evidence about specific government-funded projects leading to substantial economic payoffs in the private sector (Mazzucato 2013)
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