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Innovation shortfalls

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  • Maloney, William
  • Rodriguez-Clare, Andres

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 (R&D) when compared with some high innovation countries. The usual reaction to this perceived problem is to call for increases in R&D 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 R&D 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. How can we know when a country suffers from an innovation shortfall above and beyond the ones that should be expected given the country's specialization and accumulation patterns? This is the question the authors tackle in this paper. First, they show a simple way to estimate the R&D gap that can be explained by a country's specialization pattern, illustrating it for the case of Chile. For this country they find that although its specialization in natural-resource-intensive sectors explains part of its R&D gap, a significant shortfall remains. Second, the authors show how a calibrated model can be used to determine the R&D gap that should be expected given a country's investment in physical and human capital. If the actual R&D gap is above this expected gap, then one can say that the country suffers from a true innovation shortfall.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4283.

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Date of creation: 01 Jul 2007
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Handle: RePEc:wbk:wbrwps:4283

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Keywords: Investment and Investment Climate; Economic Theory&Research; Trade and Regional Integration; Research and Development; Economic Growth;

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References

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  1. Peter J. Klenow & Andres Rodriguez-Clare, 2004. "Externalities and Growth," NBER Working Papers 11009, National Bureau of Economic Research, Inc.
  2. Comin, D., 2002. "R&D? A Small Contribution to Productivity Growth," Working Papers, C.V. Starr Center for Applied Economics, New York University 02-01, C.V. Starr Center for Applied Economics, New York University.
  3. Psacharopoulos, George, 1993. "Returns to investment in education : a global update," Policy Research Working Paper Series 1067, The World Bank.
  4. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(2), pages 298-321, April.
  5. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers, Center for International Development at Harvard University 42, Center for International Development at Harvard University.
  6. Bronwyn H. Hall & John van Reenen, 1999. "How Effective are Fiscal Incentives for R&D? A New Review of the Evidence," NBER Working Papers 7098, National Bureau of Economic Research, Inc.
  7. Lam. D. & Schoeni, R.F., 1996. "Effects on Family Background on Earnings and Returns to Schooling: Evidence from Brazil," Papers, RAND - Reprint Series 96-13, RAND - Reprint Series.
  8. Ricardo Caballero G. & Eduardo Engel G. & Alejandro Micco A., 2004. "Microeconomic Flexibility in Latin America," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 7(2), pages 5-26, August.
  9. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1160-1183, December.
  10. James Heckman & Carmen Pages, 2003. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Working Papers 10129, National Bureau of Economic Research, Inc.
  11. Soledad Arellano & Matías Braun-Llona, 1999. "Rentabilidad de la Educación Formal en Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 36(107), pages 685-724.
  12. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
  13. Peter Howitt & David Mayer-Foulkes, 2002. "R&D, Implementation and Stagnation: A Schumpeterian Theory of Convergence Clubs," NBER Working Papers 9104, National Bureau of Economic Research, Inc.
  14. Rodriguez-Clare, Andres, 2007. "Clusters and comparative advantage: Implications for industrial policy," Journal of Development Economics, Elsevier, Elsevier, vol. 82(1), pages 43-57, January.
  15. Hall, Bronwyn & Van Reenen, John, 2000. "How effective are fiscal incentives for R&D? A review of the evidence," Research Policy, Elsevier, Elsevier, vol. 29(4-5), pages 449-469, April.
  16. Ronald Findlay, 1995. "Factor Proportions, Trade, and Growth," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262061759, December.
  17. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262610450, December.
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Cited by:
  1. Zizi goschin, 2014. "R&D As An Engine Of Regional Economic Growth In Romania," Romanian Journal of Regional Science, Romanian Regional Science Association, Romanian Regional Science Association, vol. 8(1), pages 24-37, JUNE.
  2. Ping Li & Guocai Yu, 2009. "The dynamics of China’s expenditure on R&D," Frontiers of Economics in China, Springer, Springer, vol. 4(1), pages 97-109, March.

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