How important is research and development (R&D) for economic growth and the creation of new industries? Are research and development the greatest factors or are there other greater...

How important is research and development (R&D) for economic growth and the creation of new industries? Are research and development the greatest factors or are there other greater institutional factors, such as management and finance, etc.? 

Are there national R&D systems, or are large companies the focus of R&D systems? With industry level evidence, how does technology become commercial innovation. With a sense of comparative differences, what are the outcomes of industry and government innovation?

Expert Answers
Tamara K. H. eNotes educator| Certified Educator

It can be argued that investments into research and development (R&D) in both the private and academic sectors are essential for economic growth. Michael Greenstone, 3M Professor of Economics at MIT, pointed out in an address to Congress that the "American job market has become polarized between high-skilled, high-wage jobs and low-wage, low-skilled jobs" since the 1980s ("The Importance of Research and Development (R&D) for U.S. Competitiveness and a Clean Energy Future," p. 1). The above argument means that education for skill development is essential for high-wages; however, sadly, there has also been a decline in numbers of those who complete their educations. What's more, the US has diminished in its ability to compete with international markets; our total global sales of "exports produced by high technology industries [has] dropped from 20% to 12% between the 1990s and 2005," which means that the US currently does not have enough high technology markets to be able to increase the number of skilled, high-wage paying jobs (p. 2).

The only way to create new markets in order to offer jobs to both skilled and unskilled workers and thereby bridge the gap in wages is to invest in R&D to create so said new markets. Greenstone particularly notes the importance of using R&D to create new cheap energy markets. Fossil fuels remains our most plentiful and cheapest energy source, yet burning fossil fuels is also posing a threat to the environment. Despite the global threat, poor countries that are trying to develop their economies will continue to use fossil fuels as the cheapest energy source through which to grow their economies. However, government-sponsored R&D can be used to find other cheap energy sources that will create new global markets and improve the global economy. Hence, it can be said that R&D is essential in creating the markets needed to bridge the gap in earned wages and help increase the global economy.

What's more, studies have shown that private industries who invest in R&D receive a 10 to 15% rate of return; some studies show that the rate of return "can be as high as 30%" (Rachel Griffith, "How Important is Business R&D for Economic Growth and Should the Government Subsidise [sic] It?," p. 3). More important than receiving an economic rate of return, studies also show that private industry investments into R&D also generate a social rate of return that's even higher than the economic rate of return (Griffith, p. 3). R&D impacts society through its development of new knowledge, which generates new markets and new wage-earning opportunities. What's more, not only does R&D lead to innovations, it also helps companies develop the means they need to imitate creating and using the new innovations. As Griffith explains, "R&D not only stimulates innovation but also plays an important role in the adoption of existing technologies" (p. 5).