Innovation Shortfalls

39 Pages Posted: 25 Apr 2011

See all articles by William F. Maloney

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Andrés Rodríguez-Clare

affiliation not provided to SSRN

Multiple version iconThere are 3 versions of this paper

Date Written: December 2005

Abstract

There is a common perception that low productivity or low growth is due to what can be called an innovation shortfall, usually identified as a low rate of investment in research and development (RD) compared with some high-innovation countries. The usual reaction to this perceived problem is to call for increases in RD investment rates, usually specifying a target that can be as high as 3 percent of GDP. The problem with this analysis is that it fails to see that a low RD investment rate may be appropriate given the economy`s pattern of specialization, or may be just one manifestation of more general problems that impede accumulation of all kinds of capital. When does a country suffer from an innovation shortfall above and beyond the ones that should be expected given its specialization and accumulation patterns? This is the question tackled in this paper. First, it shows a simple way to estimate the RD gap that can be explained by a country`s specialization pattern, and illustrates this with the case of Chile. The analysis finds that although Chile`s specialization in natural-resource-intensive sectors explains part of its RD gap, a significant shortfall remains. Second, it shows how a calibrated model can be used to determine the RD gap that should be expected given a country`s investment in physical and human capital. If the actual RD gap is above this expected gap, the country suffers from a true innovation shortfall.

Suggested Citation

Maloney, William F. and Rodríguez-Clare, Andrés, Innovation Shortfalls (December 2005). IDB Working Paper No. 451. Available at SSRN: https://ssrn.com/abstract=1820024 or http://dx.doi.org/10.2139/ssrn.1820024

William F. Maloney (Contact Author)

World Bank - Poverty and Economic Management Unit ( email )

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IZA Institute of Labor Economics

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World Bank - Development Research Group (DECRG)

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Andrés Rodríguez-Clare

affiliation not provided to SSRN

No Address Available

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