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Testing a model of UK growth - a causal role for R&D subsidies

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We show that a DSGE model in which subsidies to private sector R&D stimulate economic growth, following the predictions of semi-endogenous growth theory, can account for the joint behaviour of UK output and total factor productivity for 1981-2010. R&D subsidies are measured as government- funded R&D performed by the private sector as a proportion of total private sector R&D. We estimate and test the performance of the model using Indirect Inference, and also investigate the robustness of the results using a Monte Carlo exercise. Our f•ndings indicate that sharp cuts in R&D subsidies tend to have highly persistent growth e¤ects in the UK.

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  • Minford, Lucy & Meenagh, David, 2018. "Testing a model of UK growth - a causal role for R&D subsidies," Cardiff Economics Working Papers E2018/3, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2018/3
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    Cited by:

    1. Lucy Minford & David Meenagh, 2020. "Supply-Side Policy and Economic Growth: A Case Study of the UK," Open Economies Review, Springer, vol. 31(1), pages 159-193, February.

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    More about this item

    Keywords

    R&D; subsidies; economic growth; government policy.;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • O00 - Economic Development, Innovation, Technological Change, and Growth - - General - - - General
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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