Neo-Schumpeterian Growth: Political and Religious Stability Matter

The purpose of this paper is to re-investigate one of the most prominent predictions of Neo-Schumpeterian growth theory-namely, that economic development is augmented by investments in R&D-by stressing that such a prediction applies only when conditional on institutional and sociocultural stability. To achieve this aim, an unbalanced panel data set of 23 OECD members and accession candidate countries from 1998 to 2018 is employed to estimate a Type III growth equation extended by interaction terms between R&D intensity and government/religious stability. Using a full set of macro controls and country-specific fixed effects, it is found that the marginal association of R&D and economic development strictly increases with institutional stability. Quantitatively, a 1-standard-deviation increase in R&D intensity is found to have a negligible association with GDP per capita when government stability is low but raises GDP per capita by up to 13.3% when government stability is high. Moreover, a symmetric relation is found such that a 1-standard-deviation increase in R&D intensity raises GDP per capita by up to 12.9% when religious stability is high. In contrast, the unconditional association between R&D and economic development is found to be small and statistically indistinguishable from zero when religious stability is low.