Senegal is the fourth largest economy in West Africa, with a real GDP and GDP per capita estimated respectively at US$760 and US$11.26 billion. The economy underwent prolonged decline until 1995, but has since recovered steadily. As a result per capita GDP has more or less stagnated since independence. The country’s economy is driven mainly by the service sector, which since 1980 contributed over 55 per cent of GDP, while agriculture and industry accounted for less than 20 per cent each. There has been noticeable improvement in industry’s share in the composition of GDP since 1990, exceeding that of agriculture. Unlike its resource-rich neighbours, Senegal’s economy is driven largely by public investment and private consumption, with share of exports remaining unchanged over the years. It is not surprising that policy makers in Senegal strived to nurture the manufacturing sector in the decades following independence.
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R&D incentives are a popular policy option to encourage private R&D worldwide. This paper provides an updated survey of R&D incentives’ effect on private R&D investment, including evaluations from developing countries. It assesses the pattern of R&D incentives, and reviews recent literature on the efficacy of these incentives. It reveals that R&D incentives generally increase private R&D, but to a varying extent depending on incentive types, countries’ income levels, industry and firm characteristics, and the design and implementation of the incentives. Overall, variability of the effect on private R&D is greater for direct incentives than indirect incentives. The effect of indirect incentives is found to be smaller in developing countries than developed countries, contrary to the predictions of growth theory. This paper investigates the potential reasons for these findings and summarizes policy implications for governments considering upgrading or adopting R&D incentives.
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