Growth and Innovation Policy in a Small, Open Economy: Should You Stimulate Domestic R&D or Exports?
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.
Year of publication: |
2011
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Authors: | Brita, Bye ; Taran, Faehn ; Grünfeld Leo A. |
Published in: |
The B.E. Journal of Economic Analysis & Policy. - De Gruyter, ISSN 1935-1682. - Vol. 11.2011, 1, p. 1-41
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Publisher: |
De Gruyter |
Saved in:
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