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

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Abstract

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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    References listed on IDEAS

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    1. Danguy, Jérôme & de Rassenfosse, Gaétan & van Pottelsberghe de la Potterie, Bruno, 2010. "The R&D-patent relationship: An industry perspective," CEPR Discussion Papers 8145, C.E.P.R. Discussion Papers.
    2. James Foreman-Peck, 2013. "Effectiveness and efficiency of SME innovation policy," Small Business Economics, Springer, vol. 41(1), pages 55-70, June.
    3. Boldrin, Michele & Levine, David K., 2008. "Perfectly competitive innovation," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 435-453, April.
    4. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    5. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    6. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael, 2011. "How much nominal rigidity is there in the US economy? Testing a new Keynesian DSGE model using indirect inference," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2078-2104.
    7. Vo Le & David Meenagh & Patrick Minford & Michael Wickens & Yongdeng Xu, 2016. "Testing Macro Models by Indirect Inference: A Survey for Users," Open Economies Review, Springer, vol. 27(1), pages 1-38, February.
    8. Vo Le & David Meenagh & Patrick Minford & Michael Wickens & Yongdeng Xu, 2016. "Testing Macro Models by Indirect Inference: A Survey for Users," Open Economies Review, Springer, vol. 27(1), pages 1-38, February.
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    More about this item

    Keywords

    R&D; subsidies; economic growth; government policy.;

    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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