POLICY RESEARCH WORKING PAPER 3 024 R & D and Development

Lederman and Maloney trace the evolution of research Taiwan (China)-have radically deviated from the and development (R&D) expenditures along the predicted trajectory and displayed impressive R&D development process using a new global panel data set. takeoffs. The authors ask whether these countries They show that R&D effort measured as a share of GDP overinvest in R&D but find that the high estimates of the rises with development at an increasing rate. The authors social rates of return probably justify this effort. examine how four groups of countries from Latin Moreover, the returns to R&D decline with per capita America, Asia, advanced manufacturing exporters, and GDP. The authors attempt to explain why rich countries advanced natural resource-abundant countries fare invest more in R&D than poor countries. They conclude relative to the predicted development trajectory. Latin that financial depth, protection of intellectual property America generally underperforms as do some countries rights, government capacity to mobilize resources, and in Asia and Europe, but their striking finding is that the quality of research institutions are the main reasons some-Finland, Israel, the Republic of Korea, and why R&D efforts rise with the level of development. This paper-a product of the Regional Studies Program, Office of the Chief Economist, Latin America and the Caribbean Region-is part of a larger effort in the region to understand the role of innovation in development. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Patricia Soto, room 18-018, telephone 202-473-7892, fax 202-522-7528, email address [email protected]. Policy Research Working Papers are also posted on theWeb at http://econ.worldbank.org. [email protected] or [email protected]. April 2003. (38 pages) The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is toget the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent Produced by the Research Advisory Staff Please do not cite without authors' permission.