ENDOGENOUS GROWTH CYCLES*

Current explanations for why a growing economy necessarily goes through periods of high and low growth predict countercyclical R&D investment. As this is very controversial from an empirical perspective, a stochastic Poisson model of endogenous growth cycles is presented where the determinants of the cyclical behavior of R&D investment are analytically studied. Providing an explicit expression for the expected length of a cycle shows that high‐frequency fluctuations can indeed be understood by this approach. It is also shown how small technological improvements translate into large aggregate fluctuations.     

R&D spending in the high-tech sector and economic growth

The present paper provides new estimates of the impact of investment in R&D on long-term economic growth. In particular, we estimate a dynamic empirical growth model using panel data for OECD countries from 1970 to 2004. This study is the first to investigate whether the specialization of R&D activities (i.e. share of R&D investment in the high-tech sector) has an additional effect on GDP per working age population. Using a system GMM estimator in order to control for endogeneity, we find that both the ratio of business enterprises’ R&D expenditures to GDP and the share of R&D investment in the high-tech sector have strong positive effects on GDP per capita and GDP per hour worked in the long term.     

Optimal research and development and the cost of business cycles

While research and development (R&D) investment has been procyclical in the post-war period, recent literature suggests that the optimal path for R&D is countercyclical, and that the economy would be better off by subsidizing R&D in recessions. The objective of this paper is to analyze the welfare effects of distortions in the intertemporal allocation of R&D resources and to compare diverse policy interventions so as to improve social welfare. To this end, we introduce a calibrated dynamic stochastic general equilibrium model with Schumpeterian endogenous growth that is capable of explaining the observed procyclicality of R&D. Our results show that the cost of business cycles is lower in the decentralized economy with procyclical R&D than in the efficient allocation with countercyclical R&D. This is because the suboptimal propagation of shocks in the decentralized equilibrium offsets some of the existing steady-state distortions. In this second-best context, countercyclical R&D subsidies have no positive effect on welfare. In contrast, fiscal policies aimed at restoring the optimal steady-state produce large welfare gains.     

Endogenous fluctuations with procyclical R&D

The literature on endogenous growth cycles predicts the countercyclical allocation of resources to R&D. However, this prediction is not supported by empirical studies. This study considers the R&D-based growth model with endogenous fluctuations introducing population growth and a negative externality that affects the productivity of R&D. We show that this simple modification makes R&D investment procyclical along sustained business cycles using both an overlapping generation framework and an infinitely-lived agent framework.     

Redistributive innovation policy,inequality, and efficiency

We examine the efficiency and distributional effects of regressive and progressive public R&D policies that target high‐tech and low‐tech sectors using a heterogenous‐agent growth model with in‐house R&D and incomplete capital markets. We find that such policies have important implications for efficiency and inequality. A regressive public R&D investment financed by income tax could boost growth and welfare via a positive effect on individual savings and effort. It could, however, also lower growth and welfare via its effect on the efficiency–inequality trade‐off. Thus, the relationship between public R&D spending and welfare is hump‐shaped, admitting an optimal degree of regressivity in public R&D spending. Using our baseline model, and the US state‐level GDP data, we derive the degree of regressiveness of public R&D investment in US states. We find that US states are more regressive in their R&D investment than the optimal regressiveness implied by our growth model.     

Population and Economic Growth Under Different Growth Engines

Using a growth model with physical capital accumulation, human capital investment and horizontal R&D activity, this paper proposes an alternative channel through which an increase in the population growth rate may yield a non‐uniform (i.e., a positive, negative, or neutral) impact on the long‐run growth rate of per‐capita GDP, as available empirical evidence seems mostly to suggest. The proposed mechanism relies on the nature of the process of economic growth (whether it is fully or semi‐endogenous), and the peculiar engine(s) driving economic growth (human capital investment, R&D activity, or both). The model also explains why in the long term the association between population growth and productivity growth may ultimately be negative when R&D is an engine of economic growth.     

Does R&D spending boost tangible investment? An analysis on European firms

This article investigates the relationship between firm’s R&D intensity, expressed as R&D expenditure over sales, and investment intensity in tangible assets. It is commonly acknowledged that R&D requires additional physical investment to be implemented. R&D increases a firm’s productivity and return to tangible investments, thus, providing to the firm incentives to bear high tangible capital costs and to invest more. This represents a crucial issue for a firm’s growth, particularly considering the strong interaction between physical capital accumulation and technological progress. The analysis is based on a large sample of manufacturing firms across seven European countries in the period 2007–2009. Since the sub-sample of firms performing R&D might not be random, there may potentially be an endogeneity issue. The analysis also considers that firms may decide to spend on R&D and investment in physical capital simultaneously. The questions of both endogeneity and simultaneity are dealt with by employing an instrumental variable two-step procedure. We find a positive and significant impact of R&D intensity on firms’ tangible investment intensity. The econometric results highlight the importance of financial factors, particularly with respect to firms’ internal resources. Exposure to international trade has a negative impact on investment, possibly depending on the time-span of the sample used.

Abbreviations: Technological Innovation and R&D; Investment Capital; Industry Studies; Firm Behavior; Empirical Analysis     

International spillovers of R&D and marginal social returns

This study analyzes marginal social and private returns of R&D investment through the impact of international spillovers of R&D stocks. We compare the marginal social with marginal private returns using data of 27 OECD and EU countries from 1995 to 2008. We consider two channels of R&D spillovers: embodied in trade flows and disembodied by bilateral technological proximity. We find that marginal social returns on R&D are much larger than the marginal private returns for R&D‐intensive countries, in the embodied spillover channel. We also find that the embodied spillover channel through import flows is more important than the disembodied channel.     

The transatlantic productivity gap: Is R&D the main culprit?

The literature has pointed to different causes to explain the productivity gap between the EU and the US in the last decades. This paper tests the hypothesis that the lower European productivity performance in comparison with the US can be explained not only by a lower level of corporate R&D investment but also by a lower capacity to translate R&D investment into productivity gains. The proposed microeconometric estimates are based on a unique longitudinal database covering the period 1990–2008 and comprising 1,809 US and EU companies for a total of 16,079 observations. Consistent with previous literature, we find robust evidence of a significant impact of R&D on productivity; however, using different estimation techniques, the R&D coefficients for the US firms always turn out to be significantly higher. To see to what extent these transatlantic differences in the R&D/productivity relationship may be related to the different sectoral structures in the US and the EU, we differentiated the analysis by sectors. The result is that bothin manufacturing, services and high‐tech manufacturing sectors US firms are more able to translate their R&D investments into productivity increases.     

On the impact of innovation and inequality in economic growth

We present robust results on the empirical relationship among income inequality, innovation, and economic growth for a panel dataset of 74 countries over the period 1996–2014. We estimate pairwise causality tests to show that there is bidirectional causality between GDP per capita and R&D, while R&D causes the Gini index of income inequality, and it causes human capital. Allowing coefficients to be different across cross-sections of countries, we get in any case a pairwise bi-directionality. By dynamic panel data estimations, when regressing R&D on GDP per capita, we obtain a threshold value of 0.16% of R&D such that for values above it there is economic growth. While regressing R&D on the Gini index, we get a threshold of 0.10% of R&D above which, the income distribution begins to improve. Finally, we estimate a growth equation that depends on R&D, income inequality, and physical capital. We obtain two thresholds, one of 38.79 for the Gini (above which the economic growth decreases), and one of 0.06% for R&D such that above it, economic growth is rising.     

Do business and public sector research and development expenditures contribute to economic growth in Central and Eastern European Countries? A dynamic panel estimation

This paper empirically estimates the role of private and public research and development in explaining growth of Central and Eastern European Countries (CEE) during 1998–2008. We employ a dynamic panel model using the Arellano–Bond's Generalized Methods of Moments (GMM). Our findings suggest that a 1% increase in business R&D intensity boosts economic growth by 0.050 (0.213) % in these countries in the short (long) run. Public R&D is found to be statistically insignificant. When introducing human capital in the regression, the contribution of business R&D to economic growth decreases, although it remains significant. We argue that part of its effect may be accounted for by human capital. While various robustness checks are performed (such as adding different control variables, sub-periods and dummies for the entrance years to the EU), most of the results imply significant business R&D coefficient. Some policy implications are addressed based on our results.     

R&D AND ECONOMIC GROWTH IN A CASH‐IN‐ADVANCE ECONOMY

R&D investment has well‐known liquidity problems, with potentially important consequences. In this study, we analyze the effects of monetary policy on economic growth and social welfare in a Schumpeterian growth model with cash‐in‐advance (CIA) constraints on R&D investment, consumption, and manufacturing. Our main results can be summarized as follows. Under the CIA constraints on R&D and consumption (the CIA constraint on manufacturing), an increase in the nominal interest rate decreases (increases) R&D and economic growth. We also analyze the optimality of Friedman rule and find that Friedman rule can be suboptimal due to a unique feature of the Schumpeterian model.     

Is R&D always growth-enhancing? Empirical evidence from the EU countries

This study provides empirical evidence regarding the effects of R&D on economic growth in a panel of 28 European Union (EU) countries over the period 1997–2014. In particular, we investigate whether the impact of business and government R&D stocks on economic growth depends on the country’s distance to the world technology frontier. The main findings are that in the EU (i) there is positive, statistically significant business R&D stock–economic growth nexus in countries that are relatively close to the frontier and (ii) no statistically significant relationship was found to exist between government R&D stock and economic growth. From the policy perspective, the results suggest that designing proper national policies that allow switching from investment-based to innovation-based strategies at appropriate moments may be far more important than a simple call for increase in R&D expenditures and setting common numerical targets for all EU-member states.     

A dynamic general equilibrium model for public R&D investment in Taiwan

In terms of economic development policies, public research and development (R&D) investment may be one of the most critical and useful tools in Taiwan, having frequently played a role in leading related overall investment in Taiwan. Although the impact channels of R&D investment are varied and complex, its benefits in terms of the development of human capital, industrial productivity, and basic research are clear. With the rapid growth of the private sector in the Taiwan economy, it is, however, debatable whether the government should continue to use the public financial budget to invest in R&D. By using a computable general equilibrium (CGE) model to simulate the impact of public R&D investment on the economy in Taiwan, the empirical evidence of the present paper is that public R&D investment gives rise to different short-term and medium-term impacts on real GDP that are mostly felt in the third or fourth years of their implementation among different industries. These impacts then gradually converge back to equilibrium in the long run. Public R&D investment boosts the technology of high-tech industries and increases exports, but it also crowds out the output of primary industries. Although the public R&D investment has a positive effect on the real wage, its effect on inflation should not be overlooked. Because of the pros and cons surrounding the impact of public R&D investment on industries and the economy, the study provided by the present paper can serve as valuable reference not only to decision-makers in government agencies but also to academic researchers.     

On the Growth Implications of Foreign Aid for Public Investment Co-Financing

In this paper we present an endogenous growth model with foreign transfers for public capital formation in order to analyze the implications for growth maximization when the public sector in recipient countries co‐finances investment projects. Our main innovation is to show that, first, there is a unique growth‐maximizing absorption rate of funds that decreases with the co‐financing ratio and, second, that high amounts of assistance may be an impediment to growth due to the excess domestic taxation required to co‐finance investment projects. We then derive a policy rule for designing the growth‐maximizing co‐financing share under a given level of assistance. Finally, we also highlight some implications for EU regional policies, which aim at fostering growth in poorer EU countries by co‐financing public capital formation.     

Does the EU Financing System Contribute to Shadow Economic Activity?

Financial contributions to the EU budget depend basically on official GDP. This means that countries with higher shadow economic activity contribute less than they should contribute in a system based on actual GDP and therefore could reduce their incentive to fight against such activities. In this paper we investigate if the EU financing system really has an influence on the intensity with which governments in EU member states fight against shadow economic activity. We find that the EU net contributors significantly fight more intensively against shadow economic activity while EU net receivers fight less. As a result, shadow economic activity is higher in net receiver and lower in net contributor countries than it were in comparison with a scenario of nationally balanced EU funding. Quantitatively and averaged over the time period 2001–2007, the diagnosed effect amounts to a stimulation of hidden economic activity by almost 10% for particular economies.     

Domestic R&D,Foreign Direct Investment and Welfare

This paper provides a new rationale to examine the two‐way relationship between domestic research and development (R&D) and foreign direct investment (FDI), as well as their impacts on domestic welfare. Our analysis is based on the strategic interaction in cost‐reducing investment decisions between domestic firms and a foreign firm, which is different from the common factors that are discussed in the literature such as spillovers and technology sourcing. Our results are as follows. We show that domestic R&D investment may either increase or decrease the foreign firm's FDI incentives. Further, depending on the marginal cost of domestic firms, domestic R&D incentives can always increase regardless of the effects of domestic R&D investment on the foreign firm's FDI decision. Finally, we find that domestic welfare improves under domestic cost reduction if the slope of the marginal cost of domestic R&D investment is sufficiently small.     

资本市场开放、融资约束与研发投入——基于不同经济周期的视角

随着对外开放步入高水平深化阶段，经济增长迈入高质量发展周期，将会给作为企业创新力核心的研发投入带来何种变化，是亟待解决的问题。以A股上市公司2011—2020年数据为样本，借助“沪深港通”政策的落地，采用交错双重差分模型分析资本市场开放宏观政策对企业研发投入的影响机理，并探究不同经济周期下融资约束的中介作用。研究发现，资本市场开放促进企业研发投入增加；资本市场开放能通过缓解融资约束促进企业增加研发投入；在经济萧条期，资本市场开放通过缓解融资约束显著促进研发投入的增加，融资约束中介效应得到证实；在经济繁荣时期，中介效应不显著；资本市场开放促进了研发投入的逆周期表现。进一步研究发现，在信息环境较差和内外部治理较差的企业中，资本市场开放对研发投入的促进作用更显著。研究结果基于企业会增加研发投入的角度为资本市场开放的正向经济后果提供了微观层面的经验证据，在一定程度证明了资本市场开放对于推动产业新技术变革、促进实体经济进步、转变经济发展方式及实现高质量发展的重要意义。     

Economic growth and budgetary components: a panel assessment for the EU

In this article, we test to determine whether a reallocation of government budgetary components can enhance long-term GDP growth in a set of 15 EU countries. We apply panel data techniques to the period 1971–2006, and use three alternative dependent variables in a growth regression: economic growth, total factor productivity and labour productivity. Our results also identify the distortions induced by public expenditure in the private factors allocation. In particular, we detect a strong crowding-in effect associated to public investment, which has enhanced economic growth by boosting private investment. We also associate a dependence of productivity on public expenditure on social security.