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A Schumpeterian Analysis of Monetary Policy, Innovation and North-South Technology Transfer

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  • Chu, Angus C.
  • Cozzi, Guido
  • Furukawa, Yuichi

Abstract

This study analyzes the cross-country effects of monetary policy on innovation and international technology transfer. We consider a scale-invariant North-South quality-ladder model that features innovative R&D in the North and adaptive R&D in the South. To model money demand, we impose cash-in-advance constraints on these two types of R&D investment. We find that an increase in the Southern nominal interest rate causes a permanent decrease in the rate of international technology transfer, a permanent increase in the North-South wage gap, and a temporary decrease in the rate of Northern innovation. An increase in the Northern nominal interest rate causes a temporary decrease in the rate of Northern innovation, a permanent decrease in the North-South wage gap, and an ambiguous effect on the rate of international technology transfer depending on the relative size of the two economies. We also calibrate the model to China-US data and find that the cross-country welfare effects of monetary policy are quantitatively significant. Specifically, permanently decreasing the nominal interest rate to zero in China leads to a welfare gain of 3.37% in China and a welfare gain of 1.25% in the US. Permanently decreasing the nominal interest rate to zero in the US leads to welfare gains of 0.33% in the US and 1.24% in China.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49533.

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Date of creation: Sep 2013
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Handle: RePEc:pra:mprapa:49533

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Keywords: monetary policy; economic growth; R&D; North-South product cycles; FDI;

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  1. Hitoshi Tanaka & Tatsuro Iwaisako, 2013. "Intellectual Property Rights and Foreign Direct Investment: A Welfare Analysis," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 13-15, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  2. Marquis, M.H. & Reffett, K., 1992. "New Technology Spillovers into the Payment System," Working Papers, Department of Economics, Florida State University 1992_04_2, Department of Economics, Florida State University.
  3. Chien-Yu Huang & Juin-Jen Chang & Lei Ji, 2013. "Cash-In-Advance Constraint on R&D in a Schumpeterian Growth Model with an Endogenous Market Structure," IEAS Working Paper : academic research, Institute of Economics, Academia Sinica, Taipei, Taiwan 13-A009, Institute of Economics, Academia Sinica, Taipei, Taiwan.
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  6. Angus C. Chu & Guido Cozzi, 2014. "R&D And Economic Growth In A Cash‐In‐Advance Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 507-524, 05.
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  9. Chu, Angus C. & Cozzi, Guido & Lai, Ching-Chong & Liao, Chih-Hsing, 2013. "Monetary Policy, R&D and Economic Growth in an Open Economy," Economics Working Paper Series 1315, University of St. Gallen, School of Economics and Political Science.
  10. Tatsuro Iwaisako & Hitoshi Tanaka & Koichi Futagami, 2009. "A Welfare Analysis of Global Patent Protection in a Model with Endogenous Innovation and Foreign Direct Investment," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 09-24-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Mar 2011.
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  18. Cozzi Guido, 2007. "The Arrow Effect under Competitive R&D," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 7(1), pages 1-20, January.
  19. Chol-Won Li, 1998. "Endogenous Growth Without Scale Effects: Comment," Working Papers, Business School - Economics, University of Glasgow 9819, Business School - Economics, University of Glasgow.
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