R&D and Productivity (Economics of Growth - Article #2) - jump to related book

Here is my second article of a series on Economics of Growth, titled "R&D and Productivity". You can read the article's first paragraphs here.

Download the full article on PDF or LIT formats. LIT files can be read using Microsoft reader on any Pocket PC device.

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On 2003-02-18, Tuesday, José Tribolet, president of INESC, while speaking at the Cordoaria Nacional (Engenho & Obra expo, Lisbon) about the past, the present, and the future of his organization, made it clear how important the contact with other countries’ organizations is and will (increasingly) be, for INESC, for Portugal and for any other nation…
We truly live in a globalized economy: the world, as we know it, wouldn’t be possible at all, if it wasn’t for the entanglement of today’s reality, largely based on an unprecedented cultural openness. Most interestingly, there is data suggesting that the world would be different, for worst, from an economical point of view, if it wasn’t for the internationalization of many phenomena, from the Internet to Multi National Enterprises (MNEs).

This document comments the papers “R&D and Productivity: the international connection”, by Helpman, E. (1997), and “Multinational Enterprises, Technology Diffusion and Host Country Productivity Growth”, by Xu, B. (2000). These papers focus on the effects that a country can have on another’s economy, namely via international trade (ITR), foreign direct investment (FDI), and MNE affiliates.

Research & Development (R&D) is a tremendously important activity for economic growth. Helpman’s paper refers that one can find evidence of such importance, by (1) observing the long run consequences of many innovations and inventions, (2) checking studies that measure very high rates of return for the investment on R&D, mainly after World War II; and (3) by checking studies that measure R&D as having a strong contribute to Total Factor Productivity (TFP), be it from an enterprise or nation’s perspective.
A superb example of (1) is the invention of the microprocessor. It’s really hard to think of something else having a deeper and wider impact on the society… Surely the microprocessor was only possible because many other previous inventions, like electricity, but if one manages to think strictly forward, it probably won’t find anything else as omnipresent.
The microprocessor is also an appropriate example of (2), for that despite the ever heavier investments required to miniaturized it further, to improve its performance yet another step, and to lower its power consumption, the large millions of appliances that it will have, will most likely translate to high returns.
More importantly, the microprocessor has huge sectorial and social benefits that if considered, will compute even higher returns on investment. The social benefits include higher productivity on other activities, from teaching to agriculture, hence its weight on TFP (3).

The Intel 4004 (1971) is usually mentioned as the first microprocessor, so it is an American invention. However, there probably isn’t a single country not having benefited from it…
Helpman’s paper tries to understand how a country’s investment on R&D affects other countries’ economies. The paper identifies ITR and FDI as being two diffusion channels of technology. ITR and FDI make possible goods and services that embody Science, Technology, R&D and know-how from a source [nation] to a destination [nation]; and once available on the destination will contribute to the destination’s own goods and services.
This contribution can take many forms, such as when a country gets access to foreign inputs, which weren’t locally available on enough quantities or with the desired quality; or when a country gets the opportunity to learn the production techniques, the organization methods, and the market’s modus operandi of its commercial partner; or just by providing the opportunity to imitate, although imitation can be expensive, as in the reverse engineering of complex technological goods.

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You might enjoy reading the following book:

title: An Introduction to Efficiency and Productivity Analysis  
publisher: Kluwer Academic Publishers
authors: Tim Coelli, D.S. Prasada Rao, George E. Battese

Best possible prices are:

for european costumers: http://www.amazon.co.uk (58.75£ ~ 85.37€*) [direct link to item]

for american costumers: http://www.amazon.com (88.00 USD) [direct link to item]

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