Growth and innovation in the presence of knowledge and R&D accumulation dynamics

Michael Verba

#2015-054

This article develops a model of growth and innovation in which accumulation dynamics of knowledge and R&D are explicitly considered. The model is based on a more general knowledge production process than commonly used in Endogenous Growth Theory and R&D productivity literatures, reconciling as special cases of a broader framework disparate analytical approaches. The model of knowledge dynamics highlights the role of human capital, physical capital, and accumulation in the creation of innovations and establishes the theoretical possibility of long-run idea-driven growth without the razor-edge assumption of Romer (1990) and in the absence of growth in R&D employment stipulated by Jones (1995). This analysis also predicts the structure of estimation biases that can result from omission of relevant factors and failure to take into account the accumulation dynamics of knowledge and R&D. Empirical estimation supports these predictions. Findings provide recommendations for future empirical studies aiming to explain innovation.

JEL Classification: O30, O31, O32, O40

Keywords: Growth theory; innovation; R&D; productivity; knowledge production function; accumulation