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Opinion

R & D Expenditure: How to Raise It and Why

Raghbendra Jha, Professor of Economics and Executive Director, Australia South Asia Research Centre, Australian National University

CANBERRA, Australia, Dec 14 2020 (IPS) - Economic growth is the time-tested method of raising living standards and, if not accompanied by large increases in inequality, lowering poverty. Since World War II, economic growth has lifted hundreds of millions of people out of poverty, including in South Asia.

Raghbendra Jha

Now, economic growth is largely the result of three factors: physical and human capital accumulation, labour force growth and productivity growth. Clearly, the faster the rate of productivity growth the higher the rate of economic growth and the greater the reduction in poverty and improvement in living standards.

One of the surest ways of improving productivity growth is through Research and Development (R&D expenditure). The above table contrasts the 2018 experience of two major Asian countries in this regard: India and South Korea. Both countries had comparable per capita incomes in 1950. Now South Korea has attained high-income country status whereas India is a low middle-income country.

One of the reasons for this is the difference in the R&D expenditure of the two countries. As the above table shows, Korea spends more than 6 times India on R&D as percentage of individual GDPs. The absolute value of R&D expenditure is higher in Korea and this country has many more researchers per million population. Also interesting is the pattern of R&D expenditure in the two countries. The bulk of R&D expenditure in Korea is carried out by businesses whereas in India more than half of R&D expenditure is by government, through tax receipts.

This implies that when government finances are tight, as they will be during the current pandemic, R&D expenditure will be reduced. Also, government administered funds may not be as efficiently allocated as those in private business enterprises. Thus, in low-income countries there is a need to raise tax revenues for the purpose of subsidising R&D.

Also, agricultural productivity is not keeping pace with the speed of urbanization and growth in food demand and the demand for food is highly skewed making for an inordinate amount of food going for non-human consumption and wastage.

By 2050 more than two-thirds of the world’ population will be living in metropolitan centres. Concurrently, the population of the world is expected to rise from 7.7 billion in 2019–20 to around 9.8 billion in 2050. This growth is expected to be largely concentrated in Africa and Asia with stagnant, even declining, populations in many OECD countries.


Source: http://uis.unesco.org/apps/visualisations/research-and-development-spending/

Global urban population has grown by a staggering 411 per cent between 1960 and 2018—much higher than the growth of the total population. In Sub-Saharan Africa and the least developed countries urban population has grown more than ten-fold.

At the global level, cereal yield per hectare has grown by 285 per cent over the period 1961 to 2017 with much smaller increases in less well-off regions.

In many developing countries the total population has grown at a much faster rate than agricultural yield. These are some of the very countries that will experience the fastest pace of urbanization. Hence, there are genuine concerns for prospects for food security in these countries.

Although cereal yield has gone up, there is a substantial diversion of cereals for purposes other than human consumption, e.g. livestock. In the US, in 2015, 36 percent of corn was being used for feeding animals and 75 percent of global soya output was used to feed animals. Almost one third of the world’s arable land is being used to grow crops to feed animals.

In 2015, 70 billion farm animals were raised for the purposes of food. Over time, as world incomes grow, there is likely to be a further shift towards the consumption of meat and other animal products.

Trend rate of agricultural productivity growth is about 1.5 percent per annum whereas the rate of growth required to ensure food security for all by 2050 is about 1.75 percent. This significant gap needs to be closed. It is, therefore, imperative to boost agricultural R&D across the world, particularly in developing countries.

The diversion of grain to feed farm animals should be curtailed significantly. The consumption of crops by farm animals is creating an externality, i.e., reducing access to food for several millions. The market is unable to price this externality. A consumption tax on meat would serve this purpose. This is a market-based solution.

The diversion of crops to the production of biomass, ethanol and other products should be restricted by taxing such products. The revenue raised from both these taxes could be used for subsidising R&D in general and agriculture in particular to stimulate economic and food growth.

 


  
 
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