Assess the Impact of Oil Wealth on the Economics of Innovation: Channel Relative Prices

Given that the decision of manufacturing firms for invest in research and development activities and using of production methods with new technology and innovation depends on analysis of cost - benefit factors such as innovation and so in view of the fact that having abundant natural resources could influence economic decisions by deviation of relative prices, then the role of natural resources such as oil and gas could be useful in the process of moving variables such as innovation. This study is evaluated the impact of oil wealth on relative price distortion and hence its effect on the trend innovation in Iran during development program (1989-2011). The study shows, foreign exchange earnings from oil exports, causing deviations relative prices of production factors from the true its path and this provides the way for relative expensive factors with more value added like innovation. Innovation is relatively expensive compared with traditional inputs reduce firm's incentives to invest in research and development and so innovation process dose not generated and then productuion in Irean relying on the traditional factors with low value. Deviation of relative prices also distract economic decision-makers that results is wrong decisions and sometimes contradictory.