Impact of R&D Investment on Economic Growth of the Czech Republic - A Recursively Dynamic CGE Approach

The paper investigates how results obtained with standard CGE models can be improved by incorporating the effects of R&D activity in a recursively-dynamic CGE model built for the economy of the Czech Republic. The main objective of the paper is to quantify the impact of R&D activity on the long-term economic growth of the Czech Republic within the recursively dynamic CGE framework. The effect of R&D investment is modelled via the accumulation of knowledge that is treated as a specific production factor. The main findings show that knowledge accumulation can contribute to higher economic growth, but the impact of the dynamisation in the CGE model is very low. However, in terms of structural changes in the economy, the omission of knowledge capitalization might underestimate the tertiary sector in the longer run. The paper also investigates the efficiency of R&D investment and concludes that in the longer run, investment in capital goods is more efficient in achieving higher economic growth. In the concluding chapter, related factors that may improve the impact of knowledge in the CGE model are discussed.