R&D poverty traps

Abián García-Rodríguez and Fernando Sánchez-Losada
Additional contact information
Abián García-Rodríguez: European University Institute

No 2014/307, UB School of Economics Working Papers from University of Barcelona School of Economics

Abstract: In this paper we show that the R&D effort of a country and its economic growth are highly correlated. In order to analyze this relationship, we study the nature of the researching activity. In particular, we focus on the following characteristics of research: the inherent uncertainty of researching, the existence of a wage premium associated to innovative activities, and moral hazard. Assuming that a higher R&D effort translates into a higher R&D success probability, we show that when the R&D success probability is low, the economy is not willing to bear the risk associated to R&D activities. As a consequence, few researchers are hired and the economy stays in an R&D poverty trap, a situation where the economy is stacked in a low growth environment due to the uncertainty associated with the researching activity. In this situation, the economy grows at a constant rate, independent of the R&D success probability (although it could grow at a higher rate through a higher effort). On the other hand, if the economy increases its R&D effort such that the R&D success probability increases sufficiently, then the risk associated with R&D activities drops and the economy hires more researchers. Consequently, growth does depend on the R&D success probability and technological advancement becomes a driving force of the economy. We show that imperfect information widens this R&D poverty trap. We also show that subsidizing R&D through researchers' hiring increases growth, but it does not increase the likelihood of leaving the R&D poverty trap. Moreover, the subsidy widens the R&D poverty trap.

Keywords: R&D; poverty trap; growth. (search for similar items in EconPapers)
JEL-codes: O30 O38 O40 O41 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2014
New Economics Papers: this item is included in nep-gro and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ub.edu/ubeconomics/wp-content/uploads/2014/02/307-Web1.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ewp:wpaper:307web

Access Statistics for this paper

More papers in UB School of Economics Working Papers from University of Barcelona School of Economics Av. Diagonal 690, 08034 Barcelona. Contact information at EDIRC.
Bibliographic data for series maintained by University of Barcelona School of Economics ().