The Importance of Ideas: Innovation and Productivity in Latin America

Abstract

The capacity of a society and its firms to generate and assimilate technological change is generally recognized as a key component of prosperity and growth. A long tradition of economic thinking that goes back at least to Schumpeter has identified a strong relationship between innovation and productivity growth. In developing growth theory, Solow (1956) attributed a vital role to technological change, and his vision of this issue remains a foundation of its understanding. Griliches (1986) formalized and specified the empirical content of these ideas by developing models aimed at measuring the impact of knowledge capital on productivity (Griliches proxied the research and development [R&D] stock for knowledge capital). Romer (1990) enriched the theory by modeling the determinants of knowledge creation, turning R&D into an endogenous variable in the understanding of growth instead of an external element. A considerable body of economic, sociological, and historic research has been accumulated in recent decades about the role of knowledge in economic development. This research is organized around the notion of innovation, understood as a concept that goes beyond R&D in the traditional sense-which implies that not all innovation has a technological origin (see Box 10.1).