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Externalities in R&D: a route to endogenous fluctuations

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  • Gomes, Orlando

Abstract

Technological progress produces both positive and negative economy wide externalities. Although positive spillovers seem to prevail most of the times, there is evidence and logical arguments revealing that investment in R&D can exceed the corresponding socially optimal level. Taking on board the assumption that the two kinds of externalities are possible and that, therefore, one is able to define the pace of technical progress required to maximize social welfare, we develop a standard two-sector optimal growth model with externalities in the production of technology. The added assumption allows for introducing endogenous business cycles in the Walrasian growth setup. The undertaken stability analysis discusses the local properties of a difference equation two-dimensional system, identifying the occurrence of a flip bifurcation, and looks at global dynamics, through a numerical example, in order to better illustrate and describe the non linear nature of the system.

Suggested Citation

  • Gomes, Orlando, 2007. "Externalities in R&D: a route to endogenous fluctuations," MPRA Paper 2850, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2850
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    References listed on IDEAS

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    More about this item

    Keywords

    Technology; Externalities; Endogenous business cycles; Two-sector growth models; Nonlinear dynamics and chaos;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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