Innovation Networks and R&D Allocation

Ernest Liu and Song Ma

No 29607, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the cross-sector allocation of R&D resources in a multisector growth model with an innovation network, where one sector's past innovations may benefit other sectors' future innovations. Theoretically, we solve for the optimal allocation of R&D resources. We show a planner valuing long-term growth should allocate more R&D toward central sectors in the innovation network, but the incentive is muted in open economies that benefit more from foreign knowledge spillovers. We derive sufficient statistics for evaluating the welfare gains from improving R&D allocation. Empirically, we build the global innovation network based on patent citations and establish its empirical importance for knowledge spillovers. We evaluate R&D allocative efficiency across countries using model-based sufficient statistics. Japan has the highest allocative efficiency among the advanced economies. For the U.S., improving R&D allocative efficiency to Japan's level could generate more than 19.6% welfare gains.

JEL-codes: F43 O33 O38 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-cse, nep-gro, nep-ino, nep-int, nep-net, nep-opm, nep-sbm and nep-tid
Note: CF DEV EFG IFM ITI POL PR
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