Stagnation despite ongoing innovation: Is R&D expenditure composition a missing link? An empirical analysis for the US (1948–2019)

Among the explanations for prolonged economic stagnation in advanced economies, we find those that highlight the role of technical progress and its weakening impact on potential growth. Several contributions stress the apparent paradox of technological development and innovation going hand in hand with slowing labour productivity growth. This issue is in turn linked to numerous factors, among which the pattern of research productivity that appears to be falling in the last decades. This article aims to analyse the role of innovation expenditures and their effects on productivity. Using an SVAR model on US data from 1948Q1 to 2019Q4, the study estimates the effects of public versus private innovation expenditures on productivity. The findings indicate that public innovation spending has a stronger positive impact on productivity than private spending and strongly crowds in private R&D investment. Thus, the sustained decrease in public innovation expenditure relative to private expenditure contributes to prolonged stagnation.