Accounting for Trends in Productivity and R&D: A Schumpeterian Critique of Semi‐Endogenous Growth Theory

This paper argues that long‐run trends in R&D and TFP are more supportive of fully endogenous “Schumpeterian” growth theory than they are of semi‐endogenous growth theory. The distinctive prediction of semi‐endogenous theory that sustained TFP growth requires sustained growth of R&D input is not supported by co‐integration tests and forecasting exercises, as TFP growth has been stationary even though the growth rate of R&D input has fallen three‐fold since the early 1950s. In contrast, the prediction of Schumpeterian theory that sustained TFP growth requires a sustained fraction of GDP to be spent on R&D is not contradicted by similar tests.