Modelling public and private investment in innovation

In this paper we assess the contribution of investment in innovation to GDP growth in a macroeconometric model for the Italian economy. The analysis adopts the model for medium term forecasts (MeMo-It) developed by the Italian Statistical Institute (Istat), where investment is modeled by asset and institutional sector. Adopting this framework, we provide empirical evidence about the complementary relationship between private and public investment in R&D and software. Compared to the existing macroeconometric models, MeMo-It provides a novel framework for policy evaluation that makes possible the generation of alternative scenarios to assess the growth effect of specific policy measures tailored to sustain innovative investment. Our findings support the growth promoting effect of expansionary fiscal policy measures aimed at fostering public investment in innovation.