Neo-Schumpeterian Growth: Political and Religious Stability Matter

The purpose of this paper is to re-investigate one of the most prominent predictions of Neo-Schumpeterian growth theory—namely, that economic development is augmented by investments in R&D—by stressing that such a prediction applies only when conditional on institutional and socio-cultural stability. To achieve this aim, an unbalanced panel data set of 23 OECD members and accession candidate countries from 1998 to 2018 is employed to estimate a Type III growth equation extended by interaction terms between R&D intensity and government/religious stability. Using a full set of macro controls and a full set of country-specific fixed effects, it is found that the marginal association of R&D and economic development strictly increases with institutional stability. Quantitatively, a 1-standard-deviation increase in R&D intensity is found to have a negligible association with GDP per capita when government stability is low but raises GDP per capita by up to 13.3% when government stability is high. Moreover, a symmetric relation is found such that a 1-standard-deviation increase in R&D intensity raises GDP per capita by up to 12.9% when religious stability is high. In contrast, the unconditional association between R&D and economic development is found to be small and statistically indistinguishable from 0 when religious stability is low.