This essay analyzes critically the idea of knowledge spillovers, especially as it enters the New Growth Theory. The conventional theory of spillovers, we argue, suffers from a thin and misleading account of the nature of productive knowledge. In this model, firms undersupply R&D, which impedes economic growth and calls for research subsidies. We argue, by contrast, that a more subtle picture of the creation of knowledge, and the presence of network externalities (including true Marshallian external economies), tend to reverse the predictions of neoclassical theory: spillovers may actually lead to increases in the production of new knowledge.
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number
1996-06.
Length: 34 pages Date of creation: Aug 1996 Date of revision: Handle: RePEc:uct:uconnp:1996-06
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