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R&D and absorptive capacity : theory and empirical evidence

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  • Griffith, Rachel
  • Redding, Stephen
  • Van Reenen, John

Abstract

This paper presents a single unified framework that integrates the theoretical literature on Schumpeterian endogenous growth and major strands of the empirical literatures on R&D, productivity growth, and productivity convergence. Starting from a structural model of endogenous growth following Aghion and Howitt (1992), (1998), we provide microeconomic foundations for the reduced-form equations for Total Factor Productivity (TFP) growth frequently estimated empirically using industry-level data. R&D affects both innovation and the assimilation of others’ discoveries (‘absorptive capacity’). Long-run cross-country differences in productivity emerge endogenously, and the analysis implies that many existing studies underestimate R&D’s social rate of return by neglecting absorptive capacity.

Suggested Citation

  • Griffith, Rachel & Redding, Stephen & Van Reenen, John, 2003. "R&D and absorptive capacity : theory and empirical evidence," LSE Research Online Documents on Economics 209, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:209
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    More about this item

    Keywords

    absorptive capacity; endogenous growth; R&D; total factor productivity (TFP). JEL Classification codes: O10; O30; O47;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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