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R&D policies, endogenous growth and scale effects

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  • Sener, Fuat

Abstract

This paper constructs a scale-free endogenous growth model and studies the determinants of optimal R&D policy. The model combines two of the main approaches to removal of scale effects: the rent protection approach and the diminishing technological opportunities approach. The steady-state rate of innovation is a function of all of the model's parameters including the R&D subsidy/tax rate. Thus, growth is fully endogenous. Numerical simulations imply that it is optimal to tax R&D when innovations are of very small and very large magnitudes, and to subsidize R&D when innovations are of medium size. Under a wide range of empirically relevant calibrations, the subsidy rate turns out to be positive and fluctuates between 5% and 25%.

Suggested Citation

  • Sener, Fuat, 2008. "R&D policies, endogenous growth and scale effects," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3895-3916, December.
  • Handle: RePEc:eee:dyncon:v:32:y:2008:i:12:p:3895-3916
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    3. Hu, Ruiyang & Yang, Yibai & Zheng, Zhijie, 2019. "Effects of subsidies on growth and welfare in a quality-ladder model with elastic labor," MPRA Paper 96801, University Library of Munich, Germany.
    4. Elie Gray & André Grimaud, 2016. "The Lindahl equilibrium in Schumpeterian growth models," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 101-142, March.
    5. Klein, Michael A & Sener, Fuat, 2021. "Product innovation, diffusion and endogenous growth," MPRA Paper 108470, University Library of Munich, Germany.

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