might standard wisdom that only innovation matters for economic growth be mistaken? historically,...
TRANSCRIPT
Might standard wisdom that only innovation matters for
economic growth be mistaken?Historically, countries with sustained R&D expense have grown faster than others
But, in recent years, some countries with…significant R&D expense have faced little/no growth
others with virtually no R&D expense have faced significant growth
Entrepreneurs & Economic GrowthEntrepreneurs are the lubricant at the core of the growth process
The presence of entrepreneurs is a necessary condition for growth
But entrepreneurship cannot be reduced to technological innovation
And growth can take place even in the absence of R&D expenditure
Entrepreneurial TypesEntrepreneurs are arbitragers who incur upfront costs in the hope of realizing profits
They can be imitative or research-based
All incur the expense necessary to setup and operate the business
Research-based ones, unlike imitative ones, incur R&D costs
as their goods enjoy a (limited) monopoly position
Yet both Types Contribute to Technological Innovation
Research-based entrepreneurs contribute directly
Imitative entrepreneurs contribute indirectly by threatening the rent of the research-based ones and giving them incentives to continue innovating to stay ahead of competition
Impact of Imitation on Economic Growth
Increasing the imitation rate increases growth if
cost of innovation is relatively high, and research-based and imitative entrepreneurs exhibit different levels of productivity
In many poor or less developed countries, R&D is costly and unproductive
imitative entrepreneurship can promote growth
0
1
Economic Growth
zero growth
positive growth
negative growth
Entrepreneurial Types
more R&D
more imitation
0
1
m
1 - m
m = % of imitative entrepreneurs in the entrepreneurial labor force1 – m = % of research-based entrepreneurs
When IP laws are not enforced, does it reduce or augment research-based entrepreneurship?
lack of IP laws eliminates the advantage enjoyed by research-based over imitative entrepreneursIn our model, the imitation rate would increase
The question then becomes: When IP laws are not enforced and imitative e-ship increases relative to research-based e-ship, what happens to growth?
Policy ImplicationsMost policy intervention focuses on high-tech because it often yields higher/faster returns
Focus on R&D may distract policy makers (& resources) from imitative entrepreneurship when beneficial
Governments worldwide are sinking capital in the pursuit of entrepreneurial policies that may have little effect on the conditions of a country
Next: The Role of InstitutionsIf entrepreneurs are crucial for growth, it is important to understand what institutions are more conducive to entrepreneurship
Individuals act very differently under different sets of institutions
Institutions determine the relative payoffs to various opportunities and direct entrepreneurs toward those activities with the highest payoffs