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Scope of Innovations, Knowledge Spillovers and Growth

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  • Gray, Elie
  • Grimaud, André
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    Abstract

    This paper exploits the formalization of a circular product differentiation model of Salop (1979) to propose an endogenous growth quality ladder model in which the knowledge inherent in a given sector can spread variously across the sectors of the economy, ranging from local to global influence. Accordingly, this affects the size of the pool of knowledge in which innovations draw themselves on in order to be produced. Therefore, the law of knowledge accumulation, and thus the growth rate of the economy, depend positively on the expected scope of diffusion of innovations, i.e. on the intensity of knowledge spillovers. This approach generalizes the endogenous growth theory as developed in the seminal models of Grossman & Helpman (1991) and Aghion & Howitt (1992), extending their analysis to the possibility of considering stochastic and partial knowledge spillovers. This framework allows us to mitigate the positive externality of knowledge and thus to apprehend the issue of the funding of research with more parsimony. We characterize the set of steady-state Schumpeterian equilibria as a function of the public tools. We provide an explanation for the fact that research effort can either be suboptimal or over-optimal, depending on the expected scope of knowledge. Accordingly, we find that the optimal public tool dedicated to foster R&D activity depends positively on it.

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    File URL: http://idei.fr/doc/wp/2010/wp_idei_607.pdf
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    Bibliographic Info

    Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 607.

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    Date of creation: Mar 2010
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    Handle: RePEc:ide:wpaper:22690

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    Keywords: Schumpeterian growth; scope of diffusion of innovations; knowledge spillovers;

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