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The Engine of Growth

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  • Federico Etro

    ()
    (Department of Economics, University of Milan-Bicocca)

Abstract

I develop a Schumpeterian model where the engine of growth is in the microeconomic structure of the patent races and derive new results on the determinants of growth. Under decreasing marginal productivity in the R&D sector, the equilibrium is characterized by small firms investing too little and the growth process is dynamically ine?cient; the optimal policy for innovation always implies R&D subsidies. When the incumbent monopolists are leaders in the patent races, they engage in large R&D investment and their persistent leadership enhances growth. Other sources of growth may reduce investment inducing a paradoxical negative correlation between growth and R&D spending even if innovations are the main engine of growth. In the open economy, growth is driven by the largest country and increases with its relative size and openness. In a monetary economy, price stickiness induces an inverted U relation between inflation and long run growth.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper100.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 100.

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Length: 35 pages
Date of creation: Oct 2006
Date of revision: Oct 2006
Handle: RePEc:mib:wpaper:100

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Keywords: Growth; Innovation;

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Cited by:
  1. Giammario Impullitti, 2007. "International Schumpeterian Competition and Optimal R&D subsidies," Economics Working Papers ECO2007/55, European University Institute.
  2. Federico Etro, 2006. "Political geography," Public Choice, Springer, vol. 127(3), pages 321-343, June.
  3. Federico Etro, 2006. "Market Leaders and Industrial Policy," Working Papers 103, University of Milano-Bicocca, Department of Economics, revised Nov 2006.

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