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R&D and innovation

Economists and many other commentators agree that technological innovation must be at the heart of long-run growth.

But the market cannot provide enough incentives for innovation because only a small proportion of its benefits are captured by the firm or individual which invents or innovates, while other firms benefit for free from the subsequent spillovers. Therefore, studying the conditions and mechanisms for stimulating innovation in order to inform public policy has been a major research theme at the CEP.

We have shown that increased product market competition and competition arising from international trade (China) stimulates increased R&D, and that the benefits of the spillovers from firms investing in technology outweigh the negative effects of rival businesses stealing them by a doubling of gross social returns over private.

We study the firm environments stimulating innovation, finding that institutional ownership increases the likelihood of R&D by reducing the risks and pursuit of short-term goals associated with managements of privately-owned firms; that exporting firms and multinationals innovate more because they can tap into foreign knowledge of customers, suppliers, partner firm's universities and R&D labs.

For a dynamic and productive economy, a supportive environment for investment and innovation is paramount yet often missing. We show for example the depressing effect on growth of R&D caused by difficulties in raising finance from external sources. Increasing the pool of inventors is also a precondition for innovation growth but inequality in access to innovation environments and education for women, minorities and children from low-income families potentially shrinks it by a factor of four.

We show that government policies do make a difference - increases in R&D expenditure and R&D tax credits stimulate increases in private R&D and increasing the number of universities is positively associated with future growth of GDP per capita.

R&D and innovation publications

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