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R&D and absorptive capacity : theory and empirical evidence

  • Rachel Griffith
  • Stephen Redding
  • John Van Reenen

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.

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File URL: http://eprints.lse.ac.uk/209/
File Function: Open access version.
Download Restriction: no

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 209.

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Date of creation: Mar 2003
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Publication status: Published in Scandinavian Journal of Economics, March, 2003, 105(1), pp. 99-118. ISSN: 1467-9442
Handle: RePEc:ehl:lserod:209
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/

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  1. 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 525-51, August.
  2. Mansfield, Edwin, 1980. "Basic Research and Productivity Increase in Manufacturing," American Economic Review, American Economic Association, vol. 70(5), pages 863-73, December.
  3. Par Hansson & Magnus Henrekson, 1994. "What makes a country socially capable of catching up?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(4), pages 760-783, December.
  4. 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.
  5. 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.
  6. Scherer, F M, 1982. "Inter-Industry Technology Flows and Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 627-34, November.
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