R&D, Industry Dynamics and Public Policy

This study aims at providing a comprehensive empirical and theoretical study of the interrelationships between R&D, industry dynamics, worker flows and economic growth. The empirical investigations will be based on an internationally unique longitudinal d ataset covering the period 1995 to 2005, combining complete administrative registers of firms, individuals, and R&D activities in Norway. A key issue is to identify efficiency properties of various R&D instruments, and to discuss the optimal mix of R&D in struments for a small, open economy. The longitudinal dataset will partly be used for descriptive empirical studies, for example, to characterize firms and sectors investing extensively in R&D in terms of their profitability, size, employee composition a nd market position. Identified regularities will give impetus to theoretical hypotheses whose empirical relevance will in turn be rigorously tested using structural or reduced form econometric models. The econometric models will shed light on, for examp le, the underlying forces driving R&D and entrepreneurship, as well as their interrelationships. They will also be used to study the process of creative destruction, by which innovative and profitable firms absorb resources from less profitable firms in t he same sector. In Norway, there are a number of R&D policy instruments, for example, tax breaks, support from the Norwegian Research Council, state-owned venture capital funding, and patents. We will analyze optimal use of these instruments under priva te information and under different assumptions regarding market structure and nature of spillovers. Optimal policy will also be analyzed in an endogenous growth setting, in the context of a small, open economy. Finally, the project will examine effects fo llowing from an integration of the Norwegian patent system into the European Patent Convention, and discuss how the European Patent System should be designed.