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The Importance of Industrial Policy in Quality-Ladder Growth Models

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Author Info
Giordani, Paolo E.
Zamparelli, Luca

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Abstract

We extend the class of quality-ladder growth models (Grossman- Helpman (1991), Segerstrom (1998) and others), to encompass an economy with asymmetric fundamentals. In contrast to the standard framework, in our model industries may di¤er in terms of their innovative potential (quality jumps and arrival rates) and consumers’preferences. This extension allows us to bring industrial policy back into the realm of the growth policy debate. We rst show that it is always possible to raise the long-run growth rate and the social welfare of the economy through a costless tax/subsidy scheme reallocating resources towards the relatively more promising industries. We then prove that, in certain economies, even a mere pro t taxation policy increases economic growth and social welfare above the laissez-faire.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6142.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:6142

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Related research
Keywords: Innovation-Driven Growth Asymmetric Fundamentals Industrial Policy

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Find related papers by JEL classification:
O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D

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  1. Smulders, Sjak & van de Klundert, Theo, 1995. "Imperfect competition, concentration and growth with firm-specific R & D," European Economic Review, Elsevier, vol. 39(1), pages 139-160, January. [Downloadable!] (restricted)
  2. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December. [Downloadable!] (restricted)
  3. Chol-Won Li, 2003. "Endogenous Growth Without Scale Effects: Comment," American Economic Review, American Economic Association, vol. 93(3), pages 1009-1017, June. [Downloadable!]
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  4. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April. [Downloadable!] (restricted)
  5. Dinopoulos, Elias & Thompson, Peter, 1998. " Schumpeterian Growth without Scale Effects," Journal of Economic Growth, Springer, vol. 3(4), pages 313-35, December. [Downloadable!] (restricted)
  6. Robert E. Hall, 1988. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October. [Downloadable!] (restricted)
  8. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February. [Downloadable!] (restricted)
  9. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Elias Dinopoulos & Paul Segerstrom, 1999. "A Schumpeterian Model of Protection and Relative Wages," American Economic Review, American Economic Association, vol. 89(3), pages 450-472, June. [Downloadable!] (restricted)
  11. Guido Cozzi & Giammario Impullitti, . "Technology Policy and Wage Inequality," Working Papers 2008_23, Department of Economics, University of Glasgow, revised Oct 2006. [Downloadable!]
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