RESEARCH AND DEVELOPMENT : TRADE THEORY, INDUSTRIAL POLICY AND CASE STUDY OF SINGAPORE

Abstract

The role that R&D plays in any economy is hardly given the credit it deserves. This is because R&D is a behind-the-scene operation. Its effects are visible only after a long 'gestation' period and, even then, these are not immediately traceable to R&D activity. The value-added from R&D is in the technology embodied in the products and ordinary consumers can hardly be blamed for not appreciating the huge amount of funds that flows into the R&D department of the manufacturing concern involved. This academic exercise serves to bring awareness to a subject that is instrumental to our economy's long-term growth prospects and future direction. As Singapore is a small and open economy, the appropriate framework to adopt is in the context of trade. The introduction of R&D explicitly into the trade model immediately violates the assumptions of constant returns to scale in the standard trade model. However, incorporating the dynamics of R&D should be viewed as a refinement, rather than a refinement, of the traditional model of trade based on comparative advantage.