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Why don’t poor countries do R&D? Varying rates of factor returns across the development process

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  • Goñi, Edwin
  • Maloney, William F.

Abstract

Using a global panel on research and development (R&D) expenditures, this paper documents that on average poor countries do far less R&D than rich as a share of GDP. This is arguably counter intuitive since the gains from doing the R&D required for technological catch up are thought to be very high and Griffith et al. (2004) have documented that in the OECD returns increase dramatically with distance from the frontier. Exploiting recent advances in instrumental variables in a varying coefficient context we find that the rates of return follow an inverted U: they rise with distance to the frontier and then fall thereafter, potentially turning negative for the poorest countries. The findings provide a new mechanism underlying the twin income peaks – poor countries cannot exploit technological transfer for convergence while middle income countries can converge rapidly to the frontier. The low returns found for poor countries does not diminish the centrality of technological transfer for development, but rather suggests the importance of factors complementary to R&D, such as education, the quality of scientific infrastructure, the overall functioning of the national innovation system, and the quality of the private sector, which become increasingly weak with distance from the frontier and offset the catch up effect.

Suggested Citation

  • Goñi, Edwin & Maloney, William F., 2017. "Why don’t poor countries do R&D? Varying rates of factor returns across the development process," European Economic Review, Elsevier, vol. 94(C), pages 126-147.
  • Handle: RePEc:eee:eecrev:v:94:y:2017:i:c:p:126-147
    DOI: 10.1016/j.euroecorev.2017.01.008
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    More about this item

    Keywords

    R&D; Technology adoption; Convergence clubs; Development; Instrumental variable varying Coefficient models;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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