Economic Effects Of Research And Development

By Author: Henry Ford
Total Articles: 189
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The economy of the United States is the world’s largest nominal economy and its nominal GDP was estimated at $14.2 trillion in 2009 which is about three times that of the world’s second largest national economy, Japan. The US economy maintains a very high level of output per person. Historically, the US economy has maintained a stable overall GDP growth rate, a low unemployment rate and high levels of research and capital investment funded by both national and foreign investors. Innovation is believed to be the engine of a knowledge economy while research and development (R&D) is the key ingredient of the innovation process. Research and development ensures the generation of new knowledge and technologies. The organizations that perform research and development normally stay abreast often leading edge technologies, make more informed decisions and even nurture a valuable knowledge base and absorptive capacity in their skilled personell. On the other hand, new technologies that result from research and development efforts boost productivity and in turn, growth in productivity leads to economic growth. For a long time, ...
... economic research has linked Research and development expenditure with economic growth showing that about 30-50% of economic growth in the society comes from the introduction of new technologies. Therefore, a competitive and stable tax policy has the potential of being an effective tool for promoting research, development and innovation in a given country or region. As a result, the government has a major role of supporting this area by providing a favorable business environment which includes appropriate and competitive incentive programs for research and development (Warda, 2005).
This research is mainly concerned with the impacts that research and development causes on the economy of the United States of America. Economic theories and empirical evidence suggest that innovation and new product development are the key factors in economic competitiveness and growth in any given country or nation. However, the main driver of innovation and new products are research and development activities (Romer, 1990). Public officials and economic policy makers have responded with policies aimed at increasing research and development investments which are thought to be the main contributors to productivity growth, new product development and the expansion of exports that can result in overall economic growth and enhanced quality of life (Gitell, 2008).
1.1 Thesis Statement
Research and development are beneficial to the US economy.
1.2 Main Objective
The main objective of this research is to determine the economic effect of research and development in the United States of America.
1.2.1 Specific objectives
The following are the specific objectives that will be used in this research study.
i. To determine the economic effect of research and development to the US economy
ii. To determine the role of the US government in facilitating research and development
iii. To establish the involvement of the public and private sector in research and development in the US
iv. To establish the role of research and development in the various sectors of the US economy
1.3 Research Question
The main focus of this research will be in the area of economic effect of research and development in the US by analyzing primary and secondary materials with guidance of the following primary research question:
How does research and development affect the economic growth of the United States of America?
1.3.1 Specific research question
i. Does research and development enhance economic growth in the US?
ii. What is the role of research and development in the various sectors of the US economy?
iii. What role does the US government play in enhancing research and development?
iv. How is the public and private sectors of the US involved in promoting research and development?
1.4 Problem statement
There are pressures to reduce public funding for basic research in favor of more applied work. The pressures are mostly due to a change in public perception of the benefits of basic research although even those who understand the value of basic research often question whether it really confers any special economic growth. Based on the fact that business investments on research and development leveled –off in most countries in the early 1990s after a period of steady economic growth (Guellec, 1997), its also essential to determine whether a structural shift in research and development in the government of the United states occurred because this could have possible adverse consequences to the nation in the long-run. Therefore, the role of this study is to assess the economic effects that research and development has produced in the US
1.5 Purpose of the study
The main purpose of this study is to assess the economic effect of research and development to economy of the United States of America. Since literature shows that basic research does confer a preferential economic advantage on countries that fund it and that it’s the reason why the United States is likely to dominate vital markets well into the next century, this study will be carried out to determine the validity of the findings of earlier researchers. This study will find out the extent to which various institutions of higher learning are involved in research and development projects with an aim of ascertaining the future of the US economy since the current generation holds the future of the US economy.
1.6 Significance of the study
With an aim of promoting research and development in the US, it is essential to understand the economic impacts that research and development pose to the economy. By establishing the role of research and development in the various sectors of the economy, it will be easier to change the perception of those people who think that the US government wastes money when it invests in such projects. Once the importance or benefits of research and development are understood, may sectors of the economy will be convinced to venture and invest in research and development to boost their own output and the country’s economic growth at large. Understanding the government’s function in ensuring that research and development is progressive in the US will persuade people to pay their taxes promptly for the good and well being of their country’s economy.
1.7 Abbreviations and definition of terms
R&D-Research and Development
GDP-Gross domestic product
USA-United States of America
DRAM- Dynamic random access memories
US Department of Agriculture- USDA
RFS-Renewable fuel standard
For the purpose of this study, the following operational definition will be used:
Research and development-this refers to the pursuit of new knowledge and ideas and the application of that knowledge to exploit new opportunities to the commercial advantage of a business. In other words it’s the process of discovering solutions to problems or creating new goods and knowledge (Chung, 2009).
2.0 Literature review
2.1 Economic growth
According to Jones (2008), economic growth is a term that is used to indicate the increase of per capita gross domestic product (GDP) or other measures of aggregate income. It’s often measured as the rate of change in GDP. Economic growth may also mean the quantity of goods and services produced. In order to compare per capita income, the statistics may be quoted in a single currency depending on the prevailing exchange rates or purchasing power parity. Compensation for the changes in the value of money, the GDP and GNP is usually given in real or inflation adjusted terms rather than the actual money figure compiled in a given year. This is known as the nominal or current figure. In the early modern period, people in Western European nations came up with the idea that economies could grow; meaning they would produce a greater economic surplus which could be expended on a different thing than mere subsistence. This surplus could then be used for consumption, warfare or civic and religious projects. However, nowadays it’s recognized that economic growth also corresponds to a process of continual rapid replacement and reorganization of human activities facilitated by investment motivated to maximize returns.
Economists differentiate between short-term economic stabilization and long-term economic growth because the topic of economic growth is primarily concerned with the long-run and the short-run variation of economic growth is termed as the business cycle. The long run path of economic growth is generally considered as on of the central questions of economics. Despite, some problems of measurement, an increase in GDP of a country is generally taken as an increase in the standard of living of its inhabitants. Therefore, over long periods of time, even small rates of annual growth can have large impacts through compounding. On the other hand, many economists view entrepreneurship as having a major influence on a society’s rate of technological progress hence creating economic growth (Jones, 2008). There are various theories and models that are linked to economic growth some of them are illustrated as follows.
To begin with is the neo-classical growth model. This model uses the notion of growth as increased stocks of capital goods and it involves a series of equations which show the relationship between labor time, capital goods, output and investment. In this case the role of technological change is crucial and it’s even more important than the accumulation of capital. The model was developed by Robert Solow and Trevor Swan in the 1950s and it was the first attempt to model long-run growth analytically. It assumes that countries use their resources efficiently and that there are diminishing returns to capital and labor increases. The neoclassical model makes three important predictions. First, increasing capital relative to labor creates economic growth since people can be more productive if given more capital. Secondly, poor countries with less capital per person have the capability of growing faster because each investment in capital will produce a higher return than rich countries with ample capital. Lastly, economies can reach a point at which no new increase in capital will can create economic growth. This point is referred to as the ‘steady state’. The neo-classical growth theory also notes that countries can overcome the steady state and continue growing by inventing new technologies through research and development. Additionally, this model stipulates that the process by which countries continue growing despite the diminishing returns is exogenous and it represents the creation of new technology which allows production with fewer resources. Therefore, it’s believed that technology improves the steady state level of capital increases and that countries that invest grow (Jones, 2008).

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