Drivers of Growth in the Modern Economy: R&D, Innovation, ICT and Human Capital

The importance of R&D and innovation for productivity and long run economic growth is difficult to overstate. In the modern economy, firms invest in a wide range of intangible assets, including data, software, patents, new organisational processes and firm-specific skills. Together, these non-physical assets make up a firm’s knowledge-based capital. The need for Europe to move into the knowledge-based economy has been pronounced by Europe 2020 (the EU’s recent growth strategy) as a main goal. Furthermore, increasingly available firm-level data have made it possible to make significant progress in empirical studies of productivity and economic growth by applying advanced econometric methods to better data. These developments have improved our knowledge of factors behind the success of firms and increased our ability to predict the effects of different policies that impact technologically advanced investments (R&D, human capital, etc.). My dissertation comprises empirical research on factors that contribute to improved business performance and poses the following questions: How is new technology adapted by the firm and how does it affect the firm’s productivity and the skill composition of the labour force? How should we account for improvements in labour quality and does it matter how we measure human capital in a growth accounting context? Do public policies aiming to increase private investments in R&D result in more innovations and higher firm productivity? What are the factors that stimulate innovation and how do these factors interact? To promote innovation and growth, the Norwegian government uses different programmes supporting firms’ R&D activities and adoption of new technologies. An explicit aim of my dissertation is to strengthen knowledge relevant for Norwegian public policies. The first and second essays shed light on one of the most researched policy topics in the labour demand literature, so-called skilled-biased technological change; the third, fourth and fifth essays focus on questions that are highly relevant for the R&D and ICT policy perspective. The following results are worth to be mentioned: • The changes in labor productivity and skill composition of workforce that are associated with large investments in equipment are small, which indicates that productivity improvements are related more to learning-by-doing than to the technological change through investment spikes. • Experience and type of education are important predictors of skill measure together with educational length. Applying our more comprehensive skill measure to TFP growth analysis gives more precise estimates of the TFP growth. • R&D projects receiving tax credits result in the development of new production processes and to some extent the development of new products for the firm. However, the SkatteFUNN-scheme does not appear to contribute to innovations in the form of new products for the market or patenting. • Though the Research Council of Norway offers grants for many marginal R&D projects, the average rate of return to these projects is estimated to be equal to the return to firm financed R&D and the estimate is about 10 per cent. • ICT investment is strongly associated with all types of innovation with the result being strongest for product innovation in manufacturing and for process innovation in service industries. However, the impact of ICT on patenting is positive only in manufacturing. ICT seems also to be relatively more important for productivity than R&D. • Overall, the use of a more skilled workforce has positive impact on innovation and productivity