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Financial Development, Econmic Growth and R&D Cyclical Movement

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  • Fung, Ka Wai Terence
  • Lau, Chi Keung Marco

Abstract

This paper builds up an endogenous growth model à la Aghion and Howitt (1992) and Boucekkine et al (2005). We assume that R&D firms use only investment good as input, instead of final good as hypothesized in the above two models. We show that investment price will be a negative function of aggregate quality index; and thus decline over time. In this model, subsidy on R&D has growth-enhancing effect. Moreover, this model predicts unambiguously that R&D is procyclical.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52567.

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Date of creation: 2013
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Handle: RePEc:pra:mprapa:52567

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Keywords: Endogeneous growth model; real business cycle; research and development;

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  1. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
  2. Ricardo J. Caballero & Adam B. Jaffe, 1993. "How High are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth," NBER Working Papers 4370, National Bureau of Economic Research, Inc.
  3. Philippe Aghion & Gilles Saint-Paul, 1998. "Uncovering Some Causal Relationships Between Productivity Growth and the Structure of Economic Fluctuations: A Tentative Survey," LABOUR, CEIS, vol. 12(2), pages 279-303, 07.
  4. Howitt, Peter & Aghion, Philippe, 1998. " Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth," Journal of Economic Growth, Springer, vol. 3(2), pages 111-30, June.
  5. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Obsolescence and Modernization in the Growth Process," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. Fung, Ka Wai Terence & Lau, Chi Keung Marco & Chan, Kwok Ho, 2013. "A R&D Based Real Business Cycle Model," MPRA Paper 52571, University Library of Munich, Germany.
  7. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
  8. Uhlig, H.F.H.V.S. & Canton, E.J.F., 1997. "Growth and the Cycle: Creative Destruction versus Entrenchment," Discussion Paper 1997-42, Tilburg University, Center for Economic Research.
  9. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
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