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Endogenous growth and technological progress with innovation driven by social interactions

Author

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  • Simone Marsiglio

    (University of Wollongong)

  • Marco Tolotti

    (Ca’ Foscari University of Venice)

Abstract

We analyze the implications of innovation and social interactions on economic growth in a stylized endogenous growth model with heterogeneous research firms. A large number of research firms decide whether to innovate or not, by taking into account what competitors (i.e., other firms) do. This is due to the fact that their profits partly depend on an externality related to the share of firms which actively engage in research activities. Such a share of innovative firms also determines the evolution of technology in the macroeconomy, which ultimately drives economic growth. We show that when the externality effect is strong enough multiple BGP equilibria may exist. In such a framework, the economy may face a low growth trap suggesting that it may end up in a situation of slow long-run growth; however, such an outcome may be fully solved by government intervention. We also show that whenever multiple BGP exist, they are metastable meaning that the economy may cyclically fluctuate between the low and high BGP as a result of shocks affecting the individual behavior of research firms.

Suggested Citation

  • Simone Marsiglio & Marco Tolotti, 2018. "Endogenous growth and technological progress with innovation driven by social interactions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(2), pages 293-328, March.
  • Handle: RePEc:spr:joecth:v:65:y:2018:i:2:d:10.1007_s00199-016-1017-9
    DOI: 10.1007/s00199-016-1017-9
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    2. Trevor Kollmann & Simone Marsiglio & Sandy Suardi & Marco Tolotti, 2021. "Social interactions, residential segregation and the dynamics of tipping," Journal of Evolutionary Economics, Springer, vol. 31(4), pages 1355-1388, September.
    3. Hiroshi Fujiu, 2021. "Business Cycles in a Two-Sided Altruism Model," Mathematics, MDPI, vol. 9(17), pages 1-12, August.
    4. Angus C. Chu & Yuichi Furukawa & Sushanta Mallick & Pietro Peretto & Xilin Wang, 2021. "Dynamic effects of patent policy on innovation and inequality in a Schumpeterian economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1429-1465, June.
    5. Suzuki, Keishun, 2020. "Patent Protection, Optimal Licensing, And Innovation With Endogenous Entry," Macroeconomic Dynamics, Cambridge University Press, vol. 24(8), pages 2033-2059, December.
    6. Wensheng Xiao & Haojia Kong & Lifan Shi & Valentina Boamah & Decai Tang, 2022. "The Impact of Innovation-Driven Strategy on High-Quality Economic Development: Evidence from China," Sustainability, MDPI, vol. 14(7), pages 1-20, April.
    7. Yunfang Hu & Takuma Kunieda & Kazuo Nishimura & Ping Wang, 2023. "Flying or trapped?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(2), pages 341-388, February.
    8. Simone Marsiglio & Marco Tolotti, 2020. "Motivation crowding‐out and green‐paradox‐like outcomes," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1559-1583, September.
    9. Jing Wan & Jie Zhang, 2023. "R&D subsidies, income taxes, and growth through cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(3), pages 827-866, October.
    10. Fang, Zhen & Razzaq, Asif & Mohsin, Muhammad & Irfan, Muhammad, 2022. "Spatial spillovers and threshold effects of internet development and entrepreneurship on green innovation efficiency in China," Technology in Society, Elsevier, vol. 68(C).
    11. Bucci, Alberto & La Torre, Davide & Liuzzi, Danilo & Marsiglio, Simone, 2019. "Financial contagion and economic development: An epidemiological approach," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 211-228.

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    More about this item

    Keywords

    Economic growth; Endogenous fluctuations; Firms interaction; Innovation; Low growth trap; Metastable equilibria;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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