Empirical Evidence on the Determinants of TFP and Its Role in the Growth of Innovation-Driven Economies

This paper provides some empirical evidence for R&D stock, openness, and economic freedom that foster the growth of TFP. However, it finds no empirical evidence for markup price and nonconstant returns to scale, implying the growth rate of TFP measured as the Solow residual reflects the true productivity growth. In addition, it also suggests empirical evidence for the enlarged role of TFP in the growth of innovation-driven economies by exploring two dynamic panel models specifying the relationship among TFP, investment, and employment. Based on these main findings, I suggest a few policy implications for Korea to fully utilize the role of TFP in the growth of the Korean economy that is transitioning to or has already transitioned to an innovation-driven economy.