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R & D sector outsourcing, human capital formation and growth in the context of developed versus developing economies

Basu, Sujata (2014): R & D sector outsourcing, human capital formation and growth in the context of developed versus developing economies.

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Abstract

An advanced economy relies on innovation activity for its further technology improvement. On the other hand a backward economy depends on both imitation from the world technology frontier and innovation activities - innovation being more skilled-intensive than imitation. In this paper I theoretically examine the impact of R & D outsourcing from an economy which is in the innovation-only regime to an imitation-innovation regime. I show that dependence on imitation activities rises and as a consequence of which share of skilled human capital falls and both skilled and unskilled human capital shifts from innovation to imitation activities in the backward economy. As a result proportion of outsourcing from advanced economy to backward economy falls. Thus, growth rate of the backward economy declines as time progresses. In the long run backward economy will get into a trap and gap from the world technology frontier rises, even if it falls in the initial period.

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