Investment in research and development and macroeconomic fluctuations: a general equilibrium model for a small open economy
DOI:
https://doi.org/10.21754/iecos.v24i2.1618Keywords:
Real Economic Cycles, Research and Development, macroeconomic dynamics, small and open economy, efficient innovative sectorAbstract
A model of Real Business Cycles that includes a sector that generates Research and Development (R&D) at the product level is estimated in order to assess the quantitative importance of this sector in the macroeconomic dynamics of a small and open economy like the Peruvian economy. It is found that an efficiently innovative product-level sector plays a crucial role as a "shield" for the economy against exogenous shocks and amplifies macroeconomic dynamics in the face of R&D policies. Thus, the R&D sector manages mitigates the initial impact on economic growth arising from an adverse internal shock by 0.6 percentage points, and from an unfavorable external shock by 2 percentage points compared to the scenario without an R&D sector. Likewise, a 1 percent increase in innovation at the product level (more varieties of products in the economy) rises GDP growth by 0.35 percentage points, boosts employment growth by 0.20 percentage points, and increases the growth of the economy's productivity by 0.90 percentage points.
Downloads
References
Aghion, P., Howitt, P., Brant-Collett, M., & García-Peñalosa, C. (1998). Endogenous growth theory. MIT press.
Aguiar, M., & Gopinath, G. (2007). Emerging market business cycles: The cycle is the trend. Journal of political Economy, 115(1), 69-102.
https://www.journals.uchicago.edu/doi/abs/10.1086/511283
Anzoategui, D., Comin, D., Gertler, M., & Martinez, J. (2019). Endogenous technology adoption and R&D as sources of business cycle persistence. American Economic Journal: Macroeconomics, 11(3), 67-110. https://doi.org/10.1257/mac.20170269
Barlevy, G. (2007). On the cyclicality of research and development. American Economic Review, 97(4), 1131-1164. https://doi.org/10.1257/aer.97.4.1131
Bianchi, F., Kung, H., & Morales, G. (2019). Growth, slowdowns, and recoveries. Journal of Monetary Economics, 101, 47-63.
https://doi.org/10.1016/j.jmoneco.2018.07.001
Christensen, M. A. (2015). The Economic Impact of Increasing Public Support to ICT R&D: A Modelling Approach. Research Papers in Economics, (JRC97907). https://doi.org/10.2791/94496
Comin, D., & Gertler, M. (2006). Medium-term business cycles. American Economic Review, 96(3), 523-551. https://doi.org/10.1257/aer.96.3.523
Comin, D. A., Gertler, M., & Santacreu, A. M. (2009). Technology innovation and diffusion as sources of output and asset price fluctuations (No. w15029). National Bureau of Economic Research. https://www.nber.org/papers/w15029
Hafeez, A., Syed, K. B. S., & Qureshi, F. (2019). Exploring the Relationship between Government R & D Expenditures and Economic Growth in a Global Perspective: A PMG Estimation Approach. International Business Research, 12(4), 163-174.
https://doi.org/10.5539/ibr.v12n4p163
Hasumi, R., Iiboshi, H., & Nakamura, D. (2017). R&D Growth and Business Cycles Measured with an Endogenous Growth DSGE Model. MPRA, (85525). https://mpra.ub.uni-muenchen.de/85525/
King, R. G., & Rebelo, S. T. (1999). Resuscitating real business cycles. Handbook of macroeconomics, 1, 927-1007. https://doi.org/10.1016/S1574-0048(99)10022-3
Kung, H., & Schmid, L. (2015). Innovation, growth, and asset prices. The Journal of Finance, 70(3), 1001-1037. https://doi.org/10.1111/jofi.12241
Kydland, F. E., & Prescott, E. C. (1982). Time to build and aggregate fluctuations. Econometrica: Journal of the Econometric Society, 50(6), 1345-1370. https://doi.org/10.2307/1913386
Long Jr, J. B., & Plosser, C. I. (1983). Real business cycles. Journal of political Economy, 91(1), 39-69. https://doi.org/10.1086/261128
Mendoza, E. G. (1991). Real business cycles in a small open economy. The American Economic Review, 81(4), 797-818. https://www.jstor.org/stable/2006643
Ortiz, A., & Wishart, J. (2012). Trend Shocks and Financial Frictions in Small Open Economies Modeling (No. 5). CEMLA.
https://econpapers.repec.org/paper/cmldocinv/5.htm
Pouraghaei, N. (2016). Testing a DSGE endogenous growth model of R&D via indirect inference: productivity growth in a panel of OECD [Thesis to obtain the degree of Doctor of Philosophy]. Cardiff University. Cardiff Business School. Economics Section. https://orca.cardiff.ac.uk/id/eprint/100707
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 William Richard Sanchez Tapia
This work is licensed under a Creative Commons Attribution 4.0 International License.
CC BY 4.0 DEED Attribution 4.0 International
