Welfare and growth impacts of innovation policies in a small, open economy. An applied general equilibrium analysis
AbstractWe explore how innovation incentives in a small, open economy should be designed in order to achieve the highest welfare and growth, by means of a computable general equilibrium model with R&D-driven endogenous technological change embodied in varieties of capital. We study policy alternatives targeted towards R&D, capital varieties formation, and domestic investments in capital varieties. Subsidising domestic investments, thereby excluding stimuli to world market deliveries, generates less R&D, capital formation, economic growth, and welfare, than do the other alternatives, reflecting that the domestic market for capital varieties is limited. Directing support to R&D rather than to capital formation generates stronger economic growth, a higher number of patents and capital varieties, and a higher share of R&D in total production. However, it costs in terms of lower production within each firm, where presence of sunk patent costs and mark-ups result in efficiency losses. The welfare result is, thus, slightly lower.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 510.
Date of creation: Jul 2007
Date of revision:
Applied general equilibrium; Endogenous growth; Research and Development;
Find related papers by JEL classification:
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-13 (All new papers)
- NEP-HAP-2007-07-13 (Economics of Happiness)
- NEP-INO-2007-07-13 (Innovation)
- NEP-IPR-2007-07-13 (Intellectual Property Rights)
- NEP-MAC-2007-07-13 (Macroeconomics)
- NEP-MIC-2007-07-13 (Microeconomics)
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