Institutions and Incentives for R&D: Implications for L.A.C. Economies

Abstract

This study evaluates the role of intellectual property rights, fiscal incentives, and public funding in supporting research and development (R&D) activities, with particular attention to R&D activities in the Latin America and the Caribbean (LAC) region. The study bases its evaluations on case studies of individual countries and on cross-country empirical analyses. The study initially compares R&D activities in LAC to other regions (for example, U.S., Europe, East Asia) and finds the level of R&D activity in LAC to be comparatively low. The study then proceeds to examine how different R&D policies might impact on R&D activities in LAC. Strong conclusions are hard to draw given the limitations with the theory and empirical evidence, but the evaluations seem to suggest the following. First, a strengthening of intellectual property rights, particularly patent rights, will likely impact significantly on R&D and total factor productivity in LAC. Secondly, the success of fiscal incentives for R&D is not as clear for the LAC region, unless inefficiencies in the system of public finance can be dealt with. Thirdly, public R&D funding has the potential to stimulate private R&D, but currently the size of the public research sector in LAC may be “too large” from an efficiency point of view. A greater balance is needed between public and private R&D. Thus, an R&D matching grant program which raises public and private R&D spending in tandem (and coordinates them) will likely be a good starting point.