Testing a DSGE endogenous growth model of R&D via indirect inference: productivity growth in a panel of OECD

This thesis investigates the causal impact of research and development as the driver to the growth for a sample of 11 OECD countries over the period of 1980-2014. The R&D-driven growth hypothesis is embedded within a calibrated dynamic stochastic general equilibrium (DSGE) model to be tested via Indirect Inference simulationbased method of testing and evaluation; the method which relies on the comparison between the features of the model-generated and actual data through the auxiliary model. This method ensures the identification of the DSGE model hence there is no ambiguity in defining the direction of the causation in the model which comes from the R&D spending to productivity growth. The parameters of interest are also estimated using ‘simulated annealing’ algorithm and the parameter-modified model is tested by Indirect Inference Wald. The test results for the specified model satisfies the non-rejection condition where the relevant statistic lies within the 95% confidence interval. This thesis suggests an explicit empirical evidence that for the small open economies of OECD, the R&D spendings as a proxy for innovative activities causes a long-run growth episodes