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Innovation Shortfalls

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  • William Maloney
  • Andrés Rodríguez-Clare

Abstract

There is a common perception that low productivity or low growth is due to what can be called an `innovation shortfall,` usually identified as a low rate of investment in research and development (RD) compared with some high-innovation countries. The usual reaction to this perceived problem is to call for increases in RD investment rates, usually specifying a target that can be as high as 3 percent of GDP. The problem with this analysis is that it fails to see that a low RD investment rate may be appropriate given the economy`s pattern of specialization, or may be just one manifestation of more general problems that impede accumulation of all kinds of capital. When does a country suffer from an innovation shortfall above and beyond the ones that should be expected given its specialization and accumulation patterns? This is the question tackled in this paper. First, it shows a simple way to estimate the RD gap that can be explained by a country`s specialization pattern, and illustrates this with the case of Chile. The analysis finds that although Chile`s specialization in natural-resource-intensive sectors explains part of its RD gap, a significant shortfall remains. Second, it shows how a calibrated model can be used to determine the RD gap that should be expected given a country`s investment in physical and human capital. If the actual RD gap is above this expected gap, the country suffers from a true innovation shortfall.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4429.

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Date of creation: Dec 2005
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Handle: RePEc:idb:wpaper:4429

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References

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  1. Diego Comin, 2004. "R&D: A Small Contribution to Productivity Growth," Journal of Economic Growth, Springer, vol. 9(4), pages 391-421, December.
  2. Ricardo Caballero & Eduardo Engel & Alejandro Micco, 2005. "Microeconomic Flexibility in Latin America," Central Banking, Analysis, and Economic Policies Book Series, in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.), Labor Markets and Institutions, edition 1, volume 8, chapter 10, pages 329-366 Central Bank of Chile.
  3. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
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  11. Peter J. Klenow & Andres Rodriguez-Clare, 2004. "Externalities and Growth," NBER Working Papers 11009, National Bureau of Economic Research, Inc.
  12. Howitt, Peter & Mayer-Foulkes, David, 2005. "R&D, Implementation, and Stagnation: A Schumpeterian Theory of Convergence Clubs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 147-77, February.
  13. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
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  15. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, December.
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  17. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December.
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Cited by:
  1. Ping Li & Guocai Yu, 2009. "The dynamics of China’s expenditure on R&D," Frontiers of Economics in China, Springer, vol. 4(1), pages 97-109, March.

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