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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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    File URL: http://eprints.lse.ac.uk/209/
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    References listed on IDEAS

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    1. Par Hansson & Magnus Henrekson, 1994. "What makes a country socially capable of catching up?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(4), pages 760-783, December.
    2. Mansfield, Edwin, 1980. "Basic Research and Productivity Increase in Manufacturing," American Economic Review, American Economic Association, vol. 70(5), pages 863-873, December.
    3. Scherer, F M, 1982. "Inter-Industry Technology Flows and Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 627-634, November.
    4. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-551, August.
    5. Abramovitz, Moses, 1986. "Catching Up, Forging Ahead, and Falling Behind," The Journal of Economic History, Cambridge University Press, vol. 46(02), pages 385-406, June.
    6. Dowrick, Steve, 1989. "Sectoral change, catching up and slowing down : OECD post-war economic growth revisited," Economics Letters, Elsevier, vol. 31(4), pages 331-335, December.
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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;

    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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