Global | OECD: Innovation and Social Welfare

We analyze the effects of innovation on social welfare in a sample of 35 OECD countries from 1960 to 2017. The results suggest that the effects of innovation on social welfare are statistically significant and economically relevant. The estimated impact of innovation is robust to alternative econometric specifications.

Key points

• Key points:
• This paper analyzes the effects of innovation on social welfare in a sample of 35 OECD countries from 1960 to the present.
• The effects of innovation on social welfare are statistically significant and robust to changes in the specifications.
• In most of the estimated specifications, we find a non-linear relationship between social welfare and innovation, so the optimal rate of R&D investment is close to 2 percent and the optimal rate of researchers over total employment is close to 0.75 percent.
• From a counterfactual exercise calculating what social welfare would have been in 2017 had an R&D effort been maintained close to the optimal throughout the period, some emerging countries could have achieved welfare up to 25 to 30 percent higher than that observed in 2017.

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