R&D policy and economic growth: Factor, externality and silver bullet

Joycelyn Dominick Stabler


Economists, policymakers, researchers, and entrepreneurs argue that investment in basic research and development (R&D) of new products and processes is good for the economy. Their arguments assume that the relationships between R&D, patenting activity and economic growth are significant and positive. But the relationships among these variables are not well established. Empirical evidence is mixed regarding the strength of the relationships and the direction of causality. This study investigates the relationships using state-level data, R&D, patents, and personal income, plus measures of human and physical capital investment, are assembled for 50 states in a 20-year panel data set. The study uses linear regression, correlation analyses and case examples to demonstrate the type of relationships predicted by Solow's (1956) growth model with technology and Romer's (1990) endogenous growth model. The study lays the groundwork for further investigation of these variables at the state level. The results lend some support for the positive association between R&D, patenting activity, and growth.