Working Paper: NBER ID: w29607
Authors: Ernest Liu; Song Ma
Abstract: We study the cross-sector allocation of R&D resources in a multisector growth model with an innovation network, where one sector's past innovations may benefit other sectors' future innovations. Theoretically, we solve for the optimal allocation of R&D resources. We show a planner valuing long-term growth should allocate more R&D toward central sectors in the innovation network, but the incentive is muted in open economies that benefit more from foreign knowledge spillovers. We derive sufficient statistics for evaluating the welfare gains from improving R&D allocation. Empirically, we build the global innovation network based on patent citations and establish its empirical importance for knowledge spillovers. We evaluate R&D allocative efficiency across countries using model-based sufficient statistics. Japan has the highest allocative efficiency among the advanced economies. For the U.S., improving R&D allocative efficiency to Japan's level could generate more than 19.6% welfare gains.
Keywords: No keywords provided
JEL Codes: F43; O33; O38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D allocation to central sectors in the innovation network (O32) | welfare gains (D69) |
| knowledge spillovers from abroad (O36) | less domestic R&D allocation into network-central sectors (H54) |
| higher innovation centrality (O35) | more R&D resources (O32) |
| innovation network (O35) | stronger channel for knowledge spillovers than input-output linkages (O36) |
| upstream innovations (O36) | downstream sectors benefit (L59) |