Semi-endogenous growth models with domestic and foreign private and public R&D linked to VECMs

Abstract

ABSTRACT We present semi-endogenous growth models with productivity as functions of domestic and foreign private and public R&D. In a small country case with a Cobb–Douglas productivity production function, foreign R&D drives steady-state growth and the production function can be a long-term relation in a vector-error-correction model (VECM). Marginal productivity conditions can be long-term relations for a vector-error-correction model if the functional form is of a VES function generalizing a CES function. Combining the marginal products of VES functions with recent evidence from VECMs for five countries shows that private and public R&D have a positive effect on productivity (except for France), and a negative R&D augmenting technical change. In the case of a VES function, steady states with constant R&D/productivity ratios exist only for special cases of parameter restrictions, which are not supported by the evidence.