Research and development: driving economic change William A. Masters Purdue University www.agecon.pu

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Research and development driving economic
change William A. MastersPurdue
Universitywww.agecon.purdue.edu/staff/mastersC
ropLife International Annual Conference June 2,
2005
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The world economy 500 years of data, 250 years
of growth
USA
Estimated real income per capita,
1400-1998 (regions with above-average income)
Japan
W.Eur.
Other west
World ave.
E.Eur.
Fmr.USSR
Source Calculated from data in Angus Maddison
(2001), The World Economy A Millenial
Perspective. Paris OECD.
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Why do many lag so far behind?
Lat.Am.
Estimated real income per capita,
1400-1998 (regions with average income or below)
World ave.
Oth.Asia
China
India
Africa
Source Calculated from data in Angus Maddison
(2001), The World Economy A Millenial
Perspective. Paris OECD.
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Innovation is increasingly important for
sustaining growth
Decomposition of output growth in U.S.
agriculture, 1800-1990
Source Yair Mundlak (2005), Economic growth
Lessons from two centuries of American
agriculture. Journal of Economic Literature,
forthcoming.
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The spread of new technologiesremains
constrained by geography
Source J.D. Sachs, 2001. Tropical
Underdevelopment. NBER Working Paper 8119.
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Food may be increasingly abundant here, but lack
of it there is still the worlds greatest health
threat
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Undernutrition is gradually being eradicated in
all major regions except Africa
Data and projections on childhood underweight,
1995-2015
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Asias success is closely tied to sustained
growth in food production
Source calculated from FAO data, at
http//apps.fao.org.
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To match Asias success, Africa has a lot of
catch-up to do
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There are diminishing returns to inputs, e.g.
simply adding more fertilizer
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Sustaining and extending growth requires new
technologies, e.g. new varieties
Source Calculated from data in R.E. Evenson and
D. Gollin (2003), Crop Variety
Improvement and its Effect on Productivity.
Wallingford CABI.
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Africa has had remarkably low public investment
in crop improvement
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Public investment is usually necessary (but not
sufficient) for private RD
Netherlands
Sweden
France
UK
NZ
US
Notes Calculated from IFPRI (2003), available
online at www.asti.cgiar.org. Data refer to
various years from 1971 through 2000, and exclude
the chemical and machinery sectors.
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RD has varied but high payoffsin all regions,
including Africa
Estimated return to agricultural research and
extension (/year)
Almost all assessments show returns above 10
cost of capital
A few studies document blockbuster discoveries
Source Alston, J.M., M.C. Marra, P.G. Pardey,
and TJ Wyatt. 2000. "Research returns redux A
meta-analysis of the returns to agricultural
RD." Australian J. of Ag. and Resource Econ.,
44(2) 185-215.
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but sustaining foreign aid for agricultural RD
has been difficult!
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New funding mechanismsmay be helpful

• The value of successful food-crop techniques is
  spread among poor people in the target region
• Private firms cannot capture much of their value
  added
• Donors have difficulty contracting for
  appropriate RD or dissemination efforts
• but the value of new techniques can be measured
  after adoption, so donors could pay innovators
  then
• payments can be proportional to measured value
  added, after subtracting any value captured
  through input sales
• innovators would choose if and when to apply for
  payment, by submitting adoption data for
  verification by a secretariat
• a system for such proportional prize payments
  is documented at www.earth.columbia.edu/cgsd/priz
  es

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Conclusions

• Extending economic growth requires sustained
  technological innovation, especially for food in
  the poorest regions
• to improve nutrition, health and schooling
• to free resources for other sectors
• Existing incentives for innovation are failing
  to sustain food output growth in Africa
• increased public investment is a crucial
  foundation for private-sector growth
• prizes and other new approaches are needed to
  align innovators incentives with farmers needs.