Since its founding by Einstein, Oppenheimer, and Russell in the shadow of the atomic age, the WAAS community has insisted that knowledge must be in dialogue with conscience – that the growth of understanding carries with it a corresponding obligation to ask what that understanding is for. It is in that spirit that I offer this brief reflection on the research that has shaped my work, and on the larger questions it has led me to ask.
The economies that most need innovation are often precisely the ones whose institutions make it hardest to invest in it. Understanding why – and what can be done – is one of the defining policy challenges of our era.
A Paradox at The Heart of Development
More than half the world’s population lives in middle-income economies – societies that have escaped extreme poverty but have not yet reached the living standards of high-income countries, and many risk never doing so. The culprit, increasingly, is not a shortage of capital or labour. It is a shortage of productivity growth: the capacity to produce more with what already exists.
Brazil is the country I know best, and it illustrates the paradox with unusual sharpness. Brazilian agriculture is a world-class performer: sustained public investment in tropical biotechnology and precision farming lifted agricultural productivity by roughly 35 index points between 2007 and 2024. Yet industrial and services productivity – the sectors that account for virtually all of Brazil’s domestic economic impulse – grew by barely a fraction of that over the same period. The result is an economy that exports innovation to global commodity markets while struggling to distribute its benefits to the majority of its citizens.
What causes this divide? And, more importantly, can deliberate policy close it?
The Monetary Double Dividend: A Finding That Surprised Us
Our research set out to quantify the macroeconomic returns to Brazil’s principal innovation policy instruments – the Lei do Bem, a long-standing tax credit program for industrial R&D, and federal public investment in knowledge infrastructure. What we found exceeded our initial expectations, not in the magnitude of the direct productivity gains, but in the way those gains compound through the monetary system.
When innovation raises total factor productivity, it reduces firms’ marginal costs and com-presses inflation. Under Brazil’s inflation-targeting regime – maintained continuously since 1999 – the central bank responds to that disinflationary signal by reducing the pol-icy interest rate. That rate reduction, in turn, stimulates private investment and amplifies the original output gain through a second channel that conventional supply-side analysis misses entirely.
We call this the monetary double dividend. The counterintuitive finding with the broadest policy relevance is that the mechanism is stronger in economies with high neutral
real interest rates. Brazil’s famously elevated real rates – long viewed as the country’s principal growth impediment – turn out to be the amplifier that converts a supply-side improvement into a substantial and persistent macroeconomic dividend. The implication is not that high interest rates are desirable. It is that, in an economy already burdened by them, supply-side innovation policy constitutes a means of unlocking monetary space that tight financial conditions have otherwise closed.
A coordinated innovation package – combining RBD tax credits) public investment) and direct innovation grants – raises GDP by over nine per cent at peak and delivers a welfare gain equivalent to a permanent 3.3 per cent increase in household consumption. These are not marginal adjustments; they are structural transformations.
Knowledge, Institutions and The Limits of Policy Instruments
I want to be candid about what our research also reveals, because intellectual honesty is what WAAS asks of its members.
The policy instruments for raising innovation exist. Brazil’s Lei do Bem has been in operation for two decades. The technical knowledge of effective R&D incentive design is broadly available. The monetary transmission mechanism is well understood. And yet the productivity gap persists.
The binding constraint, our evidence suggests, is not the toolkit. It is the institutional ecosystem within which instruments operate: the depth of university-industry linkages, the quality of intellectual property enforcement, the degree of integration into global value chains, and the absorptive capacity of firms to convert innovation inputs into sustained productivity gains. Without these foundations, R&D subsidies become transfers rather than investments, and the monetary double dividend remains theoretical.
This is precisely the kind of challenge that WAAS is uniquely equipped to address – not because it requires further econometric research, but because it requires a transdisciplinary dialogue that economics alone cannot sustain. Questions of institutional trust, educational quality, social cohesion, and the governance of knowledge are as much questions of art, philosophy, and political science as they are of macroeconomics. The disciplinary silos of academic specialization are exactly what this Academy was founded to transcend.
What I Hope to Contribute
Joining WAAS at this moment is both a privilege and a responsibility. The middle-income trap is not a Brazilian problem. It is a global challenge affecting billions of people across Latin America, Africa, and South and Southeast Asia. Its resolution will require exactly the kind of transdisciplinary, value-centered, and institutionally conscious thinking that this Academy has championed since its founding.
In the years ahead, I hope to contribute to WAAS’s work in three directions.
First, by bringing rigorous empirical evidence about what innovation policy actually achieves – not in theoretical models, but in the complex reality of a large emerging economy characterized by deep inequalities and layered institutions. Second, by translating that evidence into policy recommendations that are actionable for finance ministers, central bankers, and development institution leaders operating under genuine fiscal and political constraints.
And third – most ambitiously – by examining whether the monetary double dividend extends to green innovation: whether productivity gains from low-carbon technology can simultaneously raise output, reduce inflation, and accelerate decarbonization, generating a triple dividend with profound implications for sustainable development.
The challenges confronting humanity in the coming decades demand that rigorous knowledge reach decision-makers faster, more clearly, and with greater urgency than it currently does. I look forward to pursuing that goal alongside the distinguished community of Fellows and Associate Fellows of this Academy.
Underlying research. The findings discussed in this piece draw on: Oliveira, J.G.A., Andrade, J.P., Amorim, C.R., and Soares, V.A. (2025). “When High Rates Help: Innovation Policy, TFP, and the Monetary Double Dividend in Brazil.” Working paper submitted for peer review. Data and replication code are available from the corresponding author upon reasonable request. Primary data sources: IBGE, BCB/SGS, MCTI/PINTEC, Receita Federal, SOF/STN, EPE/BEN, Penn World Tables 10.0. The views expressed are those of the author and do not necessarily represent those of the World Bank Group, its Executive Directors, or the governments they represent.
