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Testing a model of UK growth: A role for R&D subsidies

Lucy Barros Orcid Logo, David Meenagh

Economic Modelling, Volume: 82, Pages: 152 - 167

Swansea University Author: Lucy Barros Orcid Logo

Abstract

Debate continues on the economic growth effects of direct support for business R&D. We set out aDSGE model of the UK in which direct R&D subsidies drive total factor productivity (TFP) throughtheir incentive effects on agents' optimal decisions. We estimate and test the model by Indirec...

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Published in: Economic Modelling
ISSN: 02649993
Published: 2019
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URI: https://cronfa.swan.ac.uk/Record/cronfa48672
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first_indexed 2019-02-02T20:05:16Z
last_indexed 2020-11-03T04:00:08Z
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spelling 2020-11-02T16:06:14.0067393 v2 48672 2019-02-02 Testing a model of UK growth: A role for R&D subsidies 17877dc7759b0b75dc595a574bcc9b49 0000-0002-8421-107X Lucy Barros Lucy Barros true false 2019-02-02 ECON Debate continues on the economic growth effects of direct support for business R&D. We set out aDSGE model of the UK in which direct R&D subsidies drive total factor productivity (TFP) throughtheir incentive effects on agents' optimal decisions. We estimate and test the model by IndirectInference, finding that this model can account for the joint behaviour of UK output and TFP. The model allows us to analyse the short-run impact of R&D subsidies on TFP and to quantify the longer-term impacts of R&D subsidy shocks on output. We also determine uncertainty bounds for key growth parameters using Monte Carlo analysis. Our results show that even temporary policy cuts to R&D funding have long-lasting impacts on UK economic growth. The findings are of great policy relevance given ongoing debate around the future UK innovation environment and the novel application of indirect inference to this question. Journal Article Economic Modelling 82 152 167 02649993 R&amp;D, economic growth, Total Factor Productivity (TFP), UK, indirect inference, DSGE 20 10 2019 2019-10-20 10.1016/j.econmod.2019.01.002 https://www.sciencedirect.com/science/article/pii/S0264999318309829 COLLEGE NANME Economics COLLEGE CODE ECON Swansea University 2020-11-02T16:06:14.0067393 2019-02-02T15:42:03.2821057 Lucy Barros 0000-0002-8421-107X 1 David Meenagh 2 48672__18566__4acbce3672a0478f89e22d0e7f1fccd2.pdf EconModelling_R&D_Revised.pdf 2020-11-02T15:59:19.9783562 Output 344086 application/pdf Author's Original true false
title Testing a model of UK growth: A role for R&D subsidies
spellingShingle Testing a model of UK growth: A role for R&D subsidies
Lucy Barros
title_short Testing a model of UK growth: A role for R&D subsidies
title_full Testing a model of UK growth: A role for R&D subsidies
title_fullStr Testing a model of UK growth: A role for R&D subsidies
title_full_unstemmed Testing a model of UK growth: A role for R&D subsidies
title_sort Testing a model of UK growth: A role for R&D subsidies
author_id_str_mv 17877dc7759b0b75dc595a574bcc9b49
author_id_fullname_str_mv 17877dc7759b0b75dc595a574bcc9b49_***_Lucy Barros
author Lucy Barros
author2 Lucy Barros
David Meenagh
format Journal article
container_title Economic Modelling
container_volume 82
container_start_page 152
publishDate 2019
institution Swansea University
issn 02649993
doi_str_mv 10.1016/j.econmod.2019.01.002
url https://www.sciencedirect.com/science/article/pii/S0264999318309829
document_store_str 1
active_str 0
description Debate continues on the economic growth effects of direct support for business R&D. We set out aDSGE model of the UK in which direct R&D subsidies drive total factor productivity (TFP) throughtheir incentive effects on agents' optimal decisions. We estimate and test the model by IndirectInference, finding that this model can account for the joint behaviour of UK output and TFP. The model allows us to analyse the short-run impact of R&D subsidies on TFP and to quantify the longer-term impacts of R&D subsidy shocks on output. We also determine uncertainty bounds for key growth parameters using Monte Carlo analysis. Our results show that even temporary policy cuts to R&D funding have long-lasting impacts on UK economic growth. The findings are of great policy relevance given ongoing debate around the future UK innovation environment and the novel application of indirect inference to this question.
published_date 2019-10-20T04:01:31Z
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