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Innovation and Economic Growth: What is the actual importance of R&D?

By Argentino Pessoa

Abstract

This paper deals with the relationship between innovation and economic growth in the context of developed world. After examining the correlation between economic growth and R&D (research and development) intensity, and given that the impact of R&D on economic growth is mediated by the rate of growth of technology, we proceed trying to assess the linkage between R&D outlays and economic growth, through the use of the condition of free entry into R&D. Confronted with data, our argumentation shows that the optimism of the endogenous technological change models is not confirmed for countries situated below the technological frontier. Next, based on other economic and technological indicators, a succinct comparison between the Irish and Swedish cases is made. This comparison reveals the importance of investments not classified as R&D, particularly the ones that enhance the external competitiveness of the economy. We conclude that innovation policy must always consider the complexity of the economic growth process and the other ways, besides the ones based on formal R&D indicators, in which technology has an impact on growth.R&D, economic growth, technological change, innovation policy.

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