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Centralized R&D Subsidy Policy in an NEGG Model: A Welfare Analysis

Author

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  • Benjamin MONTMARTIN

    (Université de Lyon, GATE Lyon Saint-Etienne & Université Jean Monnet)

Abstract

Since the Lisbon Agenda (2000), European policies have been increasingly oriented toward R&D and innovation. In this context, we analyze the effects of a centralized R&D subsidy policy upon a steady state and welfare situation using an agglomeration and growth model composed of two asymmetric countries. Whereas the policy leads to a steady state characterized by a higher growth rate and lower inequalities, the welfare analysis provides a more contrasted vision on the effects of the policy. Even though such a policy can eliminate some distortions and improve global welfare, it implies a zero-sum game at the national level as the policy increases welfare in the periphery country and decreases it in the core country once knowledge spillovers are sufficiently localized. Consequently, a centralized R&D subsidy policy implemented in an economy composed of two asymmetric countries will be a positive-sum game only if international knowledge spillovers are sufficiently large.

Suggested Citation

  • Benjamin MONTMARTIN, 2013. "Centralized R&D Subsidy Policy in an NEGG Model: A Welfare Analysis," Discussion Papers (REL - Recherches Economiques de Louvain) 2013011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvre:2013011
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    Citations

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    Cited by:

    1. Benjamin Montmartin & Nadine Massard, 2015. "Is Financial Support For Private R&D Always Justified? A Discussion Based On The Literature On Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 29(3), pages 479-505, July.
    2. Yuping Deng & Yanrui Wu & Helian Xu, 2020. "Political Connections and Firm Pollution Behaviour: An Empirical Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(4), pages 867-898, April.
    3. Jiaan Qu & Jie Cao & Xinting Wang & Jiexin Tang & James O. Bukenya, 2017. "Political Connections, Government Subsidies and Technical Innovation of Wind Energy Companies in China," Sustainability, MDPI, vol. 9(10), pages 1-13, October.
    4. Yuping Deng & Yanrui Wu & Helian Xu, 2020. "Political Connections and Firm Pollution Behaviour: An Empirical Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(4), pages 867-898, April.
    5. repec:zbw:bofitp:2019_004 is not listed on IDEAS
    6. Deng, Yuping & Wu, Yanrui & Xu, Helian, 2019. "Political connections and firm pollution behaviour: An empirical study," BOFIT Discussion Papers 4/2019, Bank of Finland Institute for Emerging Economies (BOFIT).

    More about this item

    Keywords

    NEGG model; R&D subsidy policy; Welfare criteria;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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