Growth and Innovation Policy in a Small, Open Economy: Should You Stimulate Domestic R&D or Exports?

Bye Brita (), Faehn Taran () and Grünfeld Leo A. ()
Additional contact information
Bye Brita: Statistics Norway
Faehn Taran: Statistics Norway
Grünfeld Leo A.: Menon Business Economics

The B.E. Journal of Economic Analysis & Policy, 2011, vol. 11, issue 1, 41

Abstract: In small and open economies, absorption of foreign knowledge through international trade often plays a more important role for domestic innovation and growth than investment in domestic R&D. This suggests that trade policies can increase knowledge spillovers from abroad. Public support to R&D can be motivated both by positive internal knowledge externalities and by its ability to expand absorptive capacity. This dynamic, empirical, general equilibrium analysis models these interplays between R&D, trade and productivity. It compares public R&D support and export promotion of R&D based products with respect to long term growth and welfare impacts. We find that export promotion is inferior to R&D support in spurring R&D. However, it is not outperformed in terms of welfare generation. The reason is that existing and politically persistent policy interventions create inefficiencies that can be counteracted by R&D-based export promotion as a second-best policy.

Keywords: absorptive capacity; computable general equilibrium (CGE) model; endogenous growth; research and development; international spillovers (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (11)

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DOI: 10.2202/1935-1682.2601

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