R&D and Economic Growth: A Model to Explain Why Increased Research Does Not Lead to Increased Growth

Abstract: In recent decades, industrialized economies have significantly increased their R&D efforts while economic growth rates have been relatively stable. This goes against the conclusions of most previous economic models of endogenous growth. In this paper, an endogenous growth model has been created in which technology is treated as an income-compensated factor of production. The purpose is to create a theoretical model in which economies must increase their research intensity in order to maintain economic growth rates. The model is able to predict the growth rate and level of GDP per capita to the correct order of magnitude, although not with a remarkable degree of accuracy. However, the model seems to necessitate continuous increases in research intensity in order to maintain the economic growth rate.