The long-run growth effects of R&D policy

Abstract

We assess the long-run growth effects of public policies to business R&D using data for US manufacturing industries and taking Schumpeterian growth theory as guideline. Our analysis indicates that R&D policy in the form of R&D tax credits fosters the rate of productivity growth over the long-term horizon. This effect is quantitatively important: increasing R&D tax credits by 10% raises the growth rate of labour productivity by 0.4% per year. We show that our findings are robust to controlling for several policy instruments, growth determinants and econometric issues. Moreover, the overall evidence is consistent with the predictions of second-generation fully-endogenous growth models.