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R&D Subsidies and Economic Growth

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Author Info
Carl Davidson
Paul Segerstrom

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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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Publisher 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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  1. Lundborg, Per & Segerstrom, Paul S., 1998. "The Growth and Welfare Effects of International Mass Migration," Working Paper Series 146, Trade Union Institute for Economic Research. [Downloadable!]
    Other versions:
  2. Lööf, Hans & Heshmati, Almas, 2004. "The Impact of Public Funding on Private R&D investment: New Evidence from a Firm Level Innovation Study," Working Paper Series in Economics and Institutions of Innovation 6, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies, revised 01 Mar 2005. [Downloadable!]
  3. Jinli Zeng & Jie Zhang, . "Subsidies in an R&D growth model with elastic labor," MRG Discussion Paper Series 1206, School of Economics, University of Queensland, Australia. [Downloadable!]
    Other versions:
  4. Sørensen, Anders, 2005. "R&D Subsidies and the Surplus Appropriability Problem," Working Papers 17-2005, Copenhagen Business School, Department of Economics. [Downloadable!]
  5. 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). [Downloadable!]
  6. repec:bep:mactop:v:6:y:2006:i:2:p:1346-1346 is not listed on IDEAS
    Other versions:
  7. Tapio Palokangas, 2008. "Competition and product cycles with non-diversifiable risk," Journal of Economics, Springer, vol. 94(1), pages 1-30, 06. [Downloadable!] (restricted)
  8. Amy Glass, 1999. "Substitution and Returns to Scale in R&D," Working Papers 99-12, Ohio State University, Department of Economics. [Downloadable!]
  9. Marta Aloi & Laurence Lasselle, 2001. "Growing through Subsidies," Discussion Paper Series, Department of Economics 0109, Department of Economics, University of St. Andrews. [Downloadable!]
  10. Amy Jocelyn Glass, 1999. "Imitation as a Stepping Stone to Innovation," Working Papers 99-11, Ohio State University, Department of Economics. [Downloadable!]
  11. Atallah, Gamal, 2007. "Conditional R&D Subsidies," MPRA Paper 2895, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  12. Segerstrom, Paul S., 1998. "The Long-Run Growth Effects of R&D Subsidies," Working Paper Series 506, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
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