Economic Growth and Risk in R&D

Abstract

A growth model, in which economic growth is driven by R&D activities, is constructed to analyse issues related to the riskiness of R&D. It is shown that when R&D are risky strongly-risk-averse behaviour may suffocate the potential growth of a closed economy if risk-sharing arrangements are missing. In this model economy, risk-taking behaviour and the risk-sharing arrangements are identified as important factors that are responsible for different experiences of growth.

Keywords: Economic growth, R&D, Riskiness

JEL Classification: O4, O3