Browsing by Author "Kaila, Heidi"

Theories of endogenous growth aim at finding the sources of productivity growth inside an economy. According to R&D-based endogenous growth theories, total factor productivity (TFP) growth is driven by innovations that improve existing technologies. This thesis studies Finnish TFP growth from 1955 to 2008 by concentrating on two recent theories of R&D-based growth. In the semi-endogenous theory, a steady growth rate of R&D input is required for a sustained TFP growth rate. In the second generation model, also called the Schumpeterian model, a steady level of R&D intensity defined as R&D input adjusted with a measure of product variety, is required for steady TFP growth. These two frameworks are used to analyse a dataset that has been collected and combined from various sources. A nonstationary multivariate time series model (VECM) is used to study the two models in a nested framework which enables the comparison of the models in a robust manner. As far as we know, the nested model approach has not been conducted before in similar empirical studies. The findings of this thesis are that R&D input, using seven different measures, and TFP are cointegrated as suggested by the semi-endogenous model. However, the product variety assumption presented by the Schumpeterian model is not fully rejected although the steady state assumption of strict proportionality between R&D input and product variety is firmly rejected. These findings are in accordance with empirical studies supporting R&D-induced growth in a wider sense. However, they are contradictory with articles that compare semi-endogenous and Schumpeterian models, which have found support for the latter but not for the former. In conclusion, this thesis argues that Finnish TFP has in fact been affected by R&D already when Finland was still lagging behind the world’s high technology frontier.