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THE ECONOMICS OF

RESEARCH &DEVELOPMENT

By Christopher Freeman

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Definitions and Conceptual

Framework

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Technology

Technological Change

Techniques

Technical Change

Inventions

Technical Innovations

Innovation

Diffusion

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 Applied Research and Development

Basic Research

Research and Development

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Of Economic Thought on Technical Change

 A Historical Review

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 Adam Smith and Classical

Economists

Treatment of invention and technical change

Wealth Nations

Contributions to Economics

Optimism

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Malthus

Malthusian Controversy

Unequivocal statement of his 1st Essay onPopulation

“whereas human population tends to grow bygeometrical progression if unchecked by famine,war & disease, the means of subsistence canincrease at best by arithmetic progression.” 

Could be proved wrong if either or bothoccurred:

If human beings learned to regulate populationgrowth and to stabilize it by means other than

vice, disease, famine and war. If fast enou h technical rocess in a riculture

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Marx

Treated Malthus with contempt

Greatest tribute to the achievements of a

capitalist economy

Competitive Pressure

Capital, 1st volume:

historical transformation of productive techniques

in the development of capitalist society recognized the role of product innovations and of 

scientific discoveries generating new products

Capitalist Economic System Socialist

System

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Neoclassical Economics

Keynesian Revolution

Important assumption:

Continuity of technical change but it exclusion

from the center of the stage

Emphasis on:

market mechanisms

mathematical refinement of laissez faire perfectcompetition model

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Neoclassical Economics

high regard for science and technology and

recognized that technological change was the

main source of economic progress

Keynes remained typical of the neoclassicalschool in believing that the power of “Science and

compound interest” could lead to an age of 

prosperity

Development of economic models based on long-range historical time series and designed to

measure the respective contribution of labor,

capital and other factors

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Schumpeter 

restored innovation and technical change to

his theory of economic development

Competition based on new technology is more

widely recognized as being of greater importance

recognized that the nature of the innovative

process was changing with the rise of the giantcorporations

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Economics of Oligopoly and

Gailbraith

New interest in studying the behavior of firms

in highly concentrated branches of the

industry: the economics of imperfect 

competition and the economics of ol igopoly  it was recognized that the formal models of 

firm behavior in conditions of perfect

competition could not be used to explain

oligopoly situations, and neither cold the

models of pure monopoly

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… in Gailbraith’s work

there is the full recognition that the “long-term

view towards investment” now normally

implies a deliberate long-term strategy for the

firm’s own Research & Development 

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in The Industrial State, there was an

elaboration of ideas such as:

“conscious policy toward demand”: theory of 

producer sovereignty and consumer manipulation “ Automatization of progress”: Gailbraith’s 

corporate management “Technostructure”,

planning and launching new products and

processes, and increasingly linked to governmentthrough the military-industrial complex

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Some Recent EmpiricalResearch

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Research & Development Statistics and

Technological Change

The Sources of Invention and Innovation

Research, Innovation and Size of the Firm

Uncertainty, Management of Innovation and

Theory of the Firm

Project Evaluation, Cost Benefits,Programming and Technology Assessment

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Thank you for listening!  

END.