THE COMPOSITION OF FINAL USES, R&D, AND GROWTH

Benjamin Bental and Dan Peled

January 18, 2000

Almost all (non-defense) R\&D in the US is undertaken by industries
which directly account for most of the (non-construction) capital
formation, and close to half of all the final uses of output. While most
endogenous growth models cannot account for a direct association between
R\&D and the production of final goods, the current paper links the
composition of final uses, R\&D and growth. Some producers of final
goods in the model economy choose to invest in enhancing their
productivity, while others choose to use the commonly known
state-of-the-art technology. The resulting steady-state equilibrium is
consistant, under certain parameter values, with some basic features of
the US economy, including the above breakdown of R\&D and final uses. It
is also shown that while growth and saving both increase as a result of
a permanent improvement in the R\&D technology, in the short-run saving
and growth may be negatively correlated. Furthermore, capital goods
prices and growth rates may exhibit negative correlation, in accordance
with the data.