Strategic Complementarities Between R&d and Human Capital: Evidence From OECD
Strategic Complementarities Between R&d and Human Capital: Evidence From OECD

Summary/Abstract: In theory, there are strategic complementarities and interdependence between investments in r&d and investments in human capital, which jointly determine the ‘high’ and ‘low’ skill equilibria. The low skill equilibrium is characterized by low rates of human capital accumulation and low r&d, whereas the high skill equilibrium is characterized by both high rates of r&d and human capital accumulation. This paper investigates the theoretical model of Stephen Redding to a country-wide approach applied to 28 OECD countries. We looked at the year 2021, with R&D expressed in PPP dollars current prices and human capital in percentage of adult population with at least a bachelor’s degree. R&D investments source of funds are from business enterprises, rest of the world, government, higher education and non-profit sector. We conclude that, empirically, the theory is supported by the OECD data and this paper finds evidence of Stephen Redding’s skill equilibrium hypothesis at the country level. U.S., Sweden and Korea are in the top 90th percentile of r&d and human capital, exhibiting r&d higher than $2,034 per capita and human capital higher than 50.7%. Turkey, Slovakia and Latvia are in the bottom 10th percentiles exhibiting below $450 R&D per capita and 27.4% human capital. All OECD countries can be grouped belonging in either the high or low skill trap.

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