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R&D and absorptive capacity : theory and empirical evidence

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  • Rachel Griffith
  • Stephen Redding
  • John Van Reenen

Abstract

This paper presents a single unified framework that integrates the theoretical literature on Schumpeterian endogenous growth and major strands of the empirical literatures on R&D, productivity growth, and productivity convergence. Starting from a structural model of endogenous growth following Aghion and Howitt (1992), (1998), we provide microeconomic foundations for the reduced-form equations for Total Factor Productivity (TFP) growth frequently estimated empirically using industry-level data. R&D affects both innovation and the assimilation of others’ discoveries (‘absorptive capacity’). Long-run cross-country differences in productivity emerge endogenously, and the analysis implies that many existing studies underestimate R&D’s social rate of return by neglecting absorptive capacity.

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File URL: http://eprints.lse.ac.uk/209/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 209.

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Date of creation: Mar 2003
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Publication status: Published in Scandinavian Journal of Economics, March, 2003, 105(1), pp. 99-118. ISSN: 1467-9442
Handle: RePEc:ehl:lserod:209

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Related research

Keywords: absorptive capacity; endogenous growth; R&D; total factor productivity (TFP). JEL Classification codes: O10; O30; O47;

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  1. Mansfield, Edwin, 1980. "Basic Research and Productivity Increase in Manufacturing," American Economic Review, American Economic Association, vol. 70(5), pages 863-73, December.
  2. Par Hansson & Magnus Henrekson, 1994. "What makes a country socially capable of catching up?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(4), pages 760-783, December.
  3. Abramovitz, Moses, 1986. "Catching Up, Forging Ahead, and Falling Behind," The Journal of Economic History, Cambridge University Press, vol. 46(02), pages 385-406, June.
  4. Edward C. Prescott, 1997. "Needed: a theory of total factor productivity," Staff Report 242, Federal Reserve Bank of Minneapolis.
  5. Scherer, F M, 1982. "Inter-Industry Technology Flows and Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 627-34, November.
  6. Dowrick, Steve, 1989. "Sectoral change, catching up and slowing down : OECD post-war economic growth revisited," Economics Letters, Elsevier, vol. 31(4), pages 331-335, December.
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