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Growth and Innovation Policy in a Small, Open Economy: Should You Stimulate Domestic R&D or Exports?

  • Bye Brita

    ()

    (Statistics Norway)

  • Faehn Taran

    ()

    (Statistics Norway)

  • Grünfeld Leo A.

    ()

    (Menon Business Economics)

Registered author(s):

    In small and open economies, absorption of foreign knowledge through international trade often plays a more important role for domestic innovation and growth than investment in domestic R&D. This suggests that trade policies can increase knowledge spillovers from abroad. Public support to R&D can be motivated both by positive internal knowledge externalities and by its ability to expand absorptive capacity. This dynamic, empirical, general equilibrium analysis models these interplays between R&D, trade and productivity. It compares public R&D support and export promotion of R&D based products with respect to long term growth and welfare impacts. We find that export promotion is inferior to R&D support in spurring R&D. However, it is not outperformed in terms of welfare generation. The reason is that existing and politically persistent policy interventions create inefficiencies that can be counteracted by R&D-based export promotion as a second-best policy.

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    Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

    Volume (Year): 11 (2011)
    Issue (Month): 1 (July)
    Pages: 1-41

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    Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:42
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