Literature/202311281015 innovation led policies

First published:

Last Edited:

Number of edits:

Solow modelled growth as a production function, where the output ($Y$) depends on the physical capital ($K$) and human labor ($L$):

$$Y = f(K, L)$$
However, it leave behind any changes in technologies, or technical changes. They can be introduced to the equation as follows:

$$ Y = A(t)\times f(K, L)$$
Therefore, keeping capital and labor constant, it is possible to increase output by improving the technologies available. This is what, eventually, lead to innovation-led growth policies.

Interesting, one of the most impactful activities the state can have to ensure innovation is the creation of knowledge networks to ensure its diffusion throughout the economy (state sponsored or not).

Both Germany and the US became power centers not just because of their R&D expenditures, but because they developed systems of innovation. The same is true for Japan, and is highly contrasting to the Soviet Union: although the latter was spending more of their GDP in research (4% versus 2.5%), it was highly focused to some areas, while Japan was using innovation transversely in their economy.

The role of the state is, therefore, not just to finance the basic research, but to mobilize resources that allow the diffusion of knowledge across sectors of the economy.


These are the other notes that link to this one.

Nothing links here, how did you reach this page then?


Share your thoughts on this note
Aquiles Carattino
Aquiles Carattino
This note you are reading is part of my digital garden. Follow the links to learn more, and remember that these notes evolve over time. After all, this website is not a blog.
© 2021 Aquiles Carattino
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License
Privacy Policy