Evidence on an endogenous growth model with public R&D

Abstract

ABSTRACT The empirical investigation of properties of an endogenous growth model by Huang, Lai, and Peretto ([2023]. “Public R&D, Private R&D and Growth: A Schumpeterian Approach.” public.econ.duke.edu mimeo) in this paper confirms important assumptions and results of the model for OECD countries. Labour-augmenting technical change is enhanced through private and public R&D stocks in fully modified and dynamic OLS mean-group and pooled mean-group estimations, also when adding the number of enterprises. The CES spillover functions in the growth model’s functions for R&D stock dynamics are supported through nonlinear estimation under the assumptions of identical or different spillover parameters for private and public R&D. We suggest strong public-to-private spillovers and weak private-to-public spillovers as well as high elasticities of substitution for private–public R&D stocks for private R&D processes and low CES for public R&D processes. We confirm the existence of private–public researcher interaction effects in the private R&D knowledge growth function and provide tentative evidence for the linear model relation between public researchers and firm-level R&D and the hump-shaped relation between public and private researchers (both as % labour force). A vector-autoregressive (VAR) panel model in growth rates produces results, which are in accordance with the impact of public R&D cuts on the steady state and the transitional dynamics of the HLP model.