International Economic Development Growth and Productivity

Question: Discuss about theInternational Economic Development forGrowth and Productivity. Answer: Introduction: This assignment is basically a literature review of the article The Impact of Research and Development on Economic growth and Productivity in the U.S. States. The research and development (R and D) has a significant impact on both the output and the total factor productivity (TFP) in the long run. According to this article, the average R and D elasticity for the private sector in U.S. states from the year 1963 to 2007 is 0.056-0.143. The question addressed here is why the states with higher human capital have more R and D elasticity than other countries and what the R and D spillover effects are across the states (Blanco 2016). Theoretical Background: Research and development (R and D) means the process that the corporate companies use to develop their existing goods and procedures or the expansion of new commodities and procedures. The R and D activities may vary between the companies but the main model of these activities remains same. Moreover, the R and D activity has a positive spillover effects on the innovation and the total factor productivity (TFP). In this article, the empirical methods have been used to determine the long term effects of R and D across the states of U.S. Along with the R and D performance, the TFP of the U.S. was also considered. This article provides an analytical description of the effect of R and D and TFP on economic growth. To determine the effects, different types of econometric models have been used in the analysis part. The main research question is to identify the effects of R and D on the economic growth and productivity (Francombe and Hoffman 2013). Methodologies Used in this Paper: The paper is basically a literature review based on a peer reviewed academic article. The article has used secondary data on output, R and D, physical and human capital, labor. To estimate a production function, a regression model has been taken. Moreover, an autoregressive distributed lag model (ARDL) has been used to estimate the short run dynamics of the variables. Moreover, the Pooled Mean Group (PMG) estimator is used to determine the parameters of the long run relationship between the SGDP and TFP. The PMG estimator is good for two reasons. It provides an appropriate common ground between conventional fixed effects estimates for using the panel data and the Mean Group (MG) estimator. These are the methods used in this article. Relevancy/ Contribution: This part of the article summarizes the whole thing. The first part of the article introduces the topic of the article and it provides a summary of it. The main focus of the article is on the impact of R and D development on economic growth. The next part of the article provides the theoretical background of this issue. There are some variations in the R and D elasticity across the states. The human capital also plays a vital role in this context. The state with higher human capital will have higher R and D elasticity. When the TFP is lower, then there would be no effect on R and D activities (Mori, Kanda and Notomi 2013). Key Findings: This part of the assignment describes the main findings of this article. The relationship between the investment in R and D capital and productivity leads to the following results. The first conclusion derived from the article is that all estimated specifications reflect that the R and D of a state has an important impact on the State Gross Domestic Product (SGDP) through the TFP in future. Secondly, it was found that the R and D does not have major short run effects on the productivity. It does not matter that whether the R and D is introduced within the states or in other states. It focuses on the long run linkage between the R and D investment and growth of the economy. Another conclusion is that the strong indication of positive R and D spillovers among U.S. states reveals the fact that every dollar spent on R and D has a marginal effect of around 11% on average (Kurihara and Hanakawa 2013). Critical Review: This part of the assignment provides the critical review of the article. In recent years, there has been significant progress towards R and D activities. The measures of R and D are kept as an asset by the firms. The R and D should be allotted in such a way that the overall rate of return is very high (Wang et al. 2013). Moreover, the technological change is a significant determinant of the long-term productivity and it also improves the standard of living over time. One of the main criticisms of the endogenous growth theory is that it failed to explain the conditional convergence (Harper, Jones and Marcus 2013). Paul krugman also criticized the endogenous growth theory. One paper argued some significant issues about the rate of return to R and D. The technological opportunities and R and D, both are interrelated. The firms which have high R and D are likely to have strong technological opportunities. Similarly, firms with low R and D have weaker technological prospects. The firms of pure competitive market generally do not spend money for R and D since they dont receive normal profits. There are some industries like software, computer and robotics which spend a significant amount of money for R and D purpose. Due to the changing technologies worldwide, they have to do the R and D activities (Noyes et al. 2013). There are some challenges associated with this R D technology. Firstly, it requires a high cost. Moreover, it takes a long period to manufacture a new product. Also the outcomes are uncertain. Sometimes it cannot be predicted that whether the customers requirements will change during the lengthy R D method. The R and D model developed by Paul Romer provides the theory of endogenous growth. According to this theory, this endogenous growth model is also Pareto inefficient (Gil 2014). Reference List: Blanco, L.R., Gu, J. and Prieger, J.E., 2016. The Impact of Research and Development on Economic Growth and Productivity in the US States.Southern Economic Journal,82(3), pp.914-934. Francombe, M.H. and Hoffman, R.W. eds., 2013.Physics of Thin Films: Advances in Research and Development. Elsevier. Gil, H., 2014. Competitive Regional Development as a Synthesis of Endogenous Growth and Economic Geography. 27(2), pp.339-362. Harper, C., Jones, N. and Marcus, R., 2013.Research for development: A practical guide. Sage. Kurihara, M. and Hanakawa, M., 2013. Mega-ton Water System: Japanese national research and development project on seawater desalination and wastewater reclamation.Desalination,308, pp.131-137. Mori, Y., Kanda, H. and Notomi, T., 2013. Loop-mediated isothermal amplification (LAMP): recent progress in research and development.Journal of Infection and Chemotherapy,19(3), pp.404-411. Noyes, J., Gough, D., Lewin, S., Mayhew, A., Michie, S., Pantoja, T., Petticrew, M., Pottie, K., Rehfuess, E., Shemilt, I. and Shepperd, S., 2013. A research and development agenda for systematic reviews that ask complex questions about complex interventions.Journal of clinical epidemiology,66(11), pp.1262-1270. Wang, W., Luo, Q., Li, B., Wei, X., Li, L. and Yang, Z., 2013. Recent progress in redox flow battery research and development.Advanced Functional Materials,23(8), pp.970-986.