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Innovations in the Digital Economy: Promotion of R&D and Growth in Open Economies


  • Paul J.J. Welfens

    () (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))


This paper presents key figures on innovativeness and export dynamics in selected OECD countries and develops some new ideas on optimum R&D policies in open economies. We take a look at some selected indicators of technological and economic competitiveness in the field of RCAs and export unit values with a special focus on the US, France, Italy, Germany and the UK on the one hand and Hungary as an accession country on the other. Specialization patterns differ across countries; as do weighted export unit values. The US has been very successful in the 1990s in several key sectors which have improved both RCAs and export unit values. France has made progress in some high technology fields, Italy also stands for considerable successful structural adjustment. Germany's dynamics has been very strong in the automotive sector and in the field of precision instruments; however, Hungary and the UK also have a positive development in the automotive sector which could signal problems for Germany's exports in the lower segment of the market. As regards welfare effects of R&D support in particular, interesting cases concern technology-intensive intermediate tradables and network effects. We also emphasize the macroeconomic effects of government R&D subsidies for promoting product innovations and process innovations. It would be useful to have an EU (or OECD) tax revenue sharing system which would particularly compensate producers of intermediate innovative tradables. In a more general policy perspective, one may argue that the government should subsidize those technologyintensive fields in which the respective country has a comparative advantage or enjoys sustained increases in (weighted) export unit values. The new Schumpeter-Mundell-Fleming model presented clearly points to the benefits of an expansionary fiscal policy which would stimulate product innovations, with output and employment being higher. By contrast, there is an ambiguous result in the case of stimulating process innovations by way of expansionary supply-oriented (R&D promoting) fiscal policy. Knowledge transfer from universities to the business community would be stimulated by privatization of a considerable share of stateowned universities and the introduction of incentives for professors to create technologyintensive firms on or off campus. Knowledge and skills can be kept in the region only if the overall mix of policies creates positive growth prospects or if the country has specialized in immobile Schumpeter industries.

Suggested Citation

  • Paul J.J. Welfens, 2005. "Innovations in the Digital Economy: Promotion of R&D and Growth in Open Economies," EIIW Discussion paper disbei127, Universitätsbibliothek Wuppertal, University Library.
  • Handle: RePEc:bwu:eiiwdp:disbei127

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    Digital economy; product and process innovation; R&D policies;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General


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