This study examines the causal relationship between research and development (R&D) and economic growth. In particular, it examines the indirect contribution of public sector R&D to economic performance and growth through its inducement effect on private sector R&D investment. In doing so, this study employs cointegration techniques and uses time-series data from a fifty-year period (1953-2002) in the United States. Empirical results suggest that both public and private R&D contribute to economic performance and growth, but public support to R&D also significantly enhances economic performance indirectly through strong inducements to the private sector’s R&D investments.
I. Introduction
II. Review of the Literature
III. Data and Descriptive Analysis
IV. Empirical Results: R&D and Economic Growth
V. Concluding Remarks with Policy Implications