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R&D Subsidies and Economic Growth

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  • Carl Davidson
  • Paul Segerstrom

Abstract

We present an endogenous growth model in which some firms devote resources to developing higher-quality products (innovative R&D) and other firms devote resources to copying these products (imitative R&D). Although consumers benefit from the knowledge created by both types of R&D activities, only innovative R&D subsidies lead to faster economic growth; imitative R&D subsidies actually lead to slower economic growth. A key assumption driving these conclusions is that R&D activities are subject to decreasing returns. When R&D activities are subject to constant returns, as is commonly assumed, the only equilibrium with both innovation and imitation is unstable.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 29 (1998)
Issue (Month): 3 (Autumn)
Pages: 548-577

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Handle: RePEc:rje:randje:v:29:y:1998:i:autumn:p:548-577

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Cited by:
  1. Segerstrom, Paul S., 1998. "The Long-Run Growth Effects of R&D Subsidies," Working Paper Series 506, Research Institute of Industrial Economics.
  2. Wang, Vey & Lai, Chung-Hui, 2010. "Franchise Fee, Tax/Subsidy Policies and Economic Growth," MPRA Paper 27745, University Library of Munich, Germany.
  3. Fidel Pérez Sebastián, 2001. "Growth And Public Support To Innovation And Imitation," Working Papers. Serie AD 2001-31, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Simon Wiederhold, 2012. "The Role of Public Procurement in Innovation: Theory and Empirical Evidence," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, number 43.
  5. Marta Aloi & Laurence Lasselle, 2001. "Growing through Subsidies," Discussion Paper Series, Department of Economics 200109, Department of Economics, University of St. Andrews.

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