Why do Growth Rates Differ? Evidence from Cross-country Data on Private Sector Production

We estimate standard production functions with a new cross-country data set on business sector production, wages and R&D investment for a selection of 14 OECD countries including the USA. The data sample covers years the 1960-2004. The data suggest that growth differences can largely be explained by capital deepening and the ability to produce new technology in the form of new patents. We also find strong evidence of complementarity between patents and openness of the economy, but little evidence of increasing elasticity of substitution over time.