ABSTRACT
Technological change is an important determinant of long-run productivity growth and therefore of increases in living standards over time. Research and development (R&D), which leads to new products and processes that either increase firms’ revenues or reduce firms’ costs, is regarded as the fundamental driver of technological progress and endogenous growth. Therefore productivity growth should be amplified when R&D expenditures are also raised. Under the circumstance of economic globalization, another important way to achieve technological progress is to fully absorb and exploit the advanced technologies and experiences of the rest world. For developing countries in which few firms have well-established R&D operations, tapping into the existing world knowledge stock would seem to be a natural way of shortening the technology gap.
