11. R&D Policy and Political Corruption in a Growing Economy

Simple growth models were described in Chaps. 4 and 5. The marginal product of capital must not converge to 0 in the long run to attain sustainable growth. Productivity improvement is necessary. Chapter 5 presented analysis of a simple endogenous growth model in which productivity improvement occurs within the model. We consider publicly financed R&D. Therefore, the role of the government is important. As described in Chap. 5, we presume that the government maximizes the social welfare, which is defined as the sum of the utility of households. In practice, many earlier studies of economic growth have assumed that a government maximizes social welfare when market failure occurs (Grossman and Helpman [8], Barro and Sala-i-Martin [4]). However, a government might be selfish or myopic in practice. Governments might carry out policies to please the present generation and leave a huge burden to future generations (e.g., the financial deficit of many countries). Powerful politicians might maximize the welfare of their constituents or major donors rather raising the level of national benefit. Therefore, policies that include sacrifices today to improve future conditions might not be pursued. Resource allocation to research activities or other activities undertaken to improve future conditions tends to be lower than the optimum.