R&D, Innovation, and Economic Growth: An Empirical Analysis

IMF Working Papers, September 1, 2004

Source details

Research question: Tests main postulations of R&D based growth models that innovation is created in the R&D sectors and enables sustainable economic growth, provided that there are constant returns to innovation in terms of R&D.
Data and scope:
- Patent and R&D data for 20 OECD and 10 Non-OECD countries.
- Period covered: 1981–97.
Core conclusion: Results suggest a positive relationship between per capita GDP and innovation in both OECD and non-OECD countries, but no evidence for constant returns to innovation in terms of R&D.

Positive associations:
- A positive relationship exists between per capita GDP and innovation in both OECD and non-OECD countries.
R&D stock effects:
- The effect of R&D stock on innovation is significant only in the OECD countries with large markets.
Returns to R&D:
- No evidence for constant returns to innovation in terms of R&D, implying that innovation does not lead to permanent increases in economic growth under the tested specifications.
Limitations noted:
- Neither patent nor R&D data capture the full range of innovation and R&D activities, so results do not necessarily reject R&D based growth models.

Support for endogenous growth models:
- Findings provide some support for endogenous growth models by linking innovation and per capita GDP.
Limits to permanence of growth effects:
- Absence of constant returns to R&D implies innovation may not generate permanent increases in growth rates within this empirical framework.
Data caveats:
- Incomplete measurement of innovation and R&D activities (patent and R&D datasets) cautions against overinterpreting negative findings on long-run returns.