research and development - depends on fertility and appropriability  

• spending on research leads to new ideas >> not the same as spending on machines or labor
• fertility - how R&D spending results to new ideas/products
  • depends on interaction between basic research (searching for general principles/results) and applied research (applying results to specific uses)
  • takes time to exploit full potential of major discoveries
• appropriability - how much firms can profit from own R&D
  • too much research fertility >> doesn't mean much to discover new things >> little payoff >> small appropriability
  • protection (patents) - gives advantage to firm who makes the discover first
• too much protection >> R&D stalls >> difficult for other firms to build on past discoveries
• too little protection >> firms don't have as much incentive to keep trying
• less technologically advanced >> usually poorer patent projection >> typically more users than producers of new technology