Accounting for trends in productivity and R&D: A Schumpeterian critique of semi-endogenous growth theory

Abstract

This paper argues that long-run trends in R&D and TFP are more supportive of fully endogenous "Schumpeterian" growth theory than they are of semi-endogenous growth theory. The distinctive prediction of semi-endogenous theory that sustained TFP growth requires sustained growth of R&D input is not supported by co-integration tests and forecasting exercises, as TFP growth has been stationary even though the growth rate of R&D input has fallen three-fold since the early 1950s. In contrast, the prediction of Schumpeterian theory that sustained TFP growth requires a sustained fraction of GDP to be spent on R&D is not contradicted by similar tests.