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Growth leaders

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  • Etro, Federico

Abstract

This article presents a Schumpeterian model where the engine of growth is in the microeconomic structure of the patent races. Under decreasing marginal productivity and endogenous entry in the R&D sector, the equilibrium is characterized by small firms investing too little and the growth process is dynamically inefficient; the optimal policy for innovation always implies R&D subsidies. When the incumbent monopolists are leaders in patent races with endogenous entry, they engage in larger R&D investment and their persistent leadership enhances growth. In a multicountry setup, growth is driven by innovations in the largest country and increases with its relative size and openness. Finally, I derive the optimal R&D subsidy from the point of view of a single country, and provide a new case for international coordination of R&D policies.

Suggested Citation

  • Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
  • Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:1148-1172
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    References listed on IDEAS

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    1. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, March.
    2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    3. Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
    4. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2005. "International Unions," American Economic Review, American Economic Association, vol. 95(3), pages 602-615, June.
    5. Minniti Antonio, 2006. "Multi-product Firms, R&D, and Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-46, December.
    6. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1049-1090.
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    10. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    11. Federico Etro, 2006. "Strategic Export Promotion," Working Papers 101, University of Milano-Bicocca, Department of Economics, revised Oct 2006.
    12. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    13. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    14. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
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    16. Federico Etro, 2006. "Political geography," Public Choice, Springer, vol. 127(3), pages 321-343, June.
    17. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, April.
    18. Czarnitzki, Dirk & Kraft, Kornelius, 2005. "License Expenditures of Incumbents and Potential Entrants: An Empirical Analysis of Firm Behavior," ZEW Discussion Papers 05-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    19. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
    20. Kresimir Zigic & Viatcheslav Vinogradov & Eugen Kovac, 2006. "Persistence of Monopoly, Innovation, and R-and-D Spillovers: Static versus Dynamic Analysis," Computing in Economics and Finance 2006 516, Society for Computational Economics.
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    Cited by:

    1. Federico Etro & Andrea Colciago, 2010. "Endogenous Market Structures and the Business Cycle," Economic Journal, Royal Economic Society, vol. 120(549), pages 1201-1233, December.
    2. Ricottilli, Massimo, 2015. "Innovation through local interaction, imitation and investment waves," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 58-70.
    3. Pedro Gil & Fernanda Figueiredo, 2013. "Firm size distribution under horizontal and vertical innovation," Journal of Evolutionary Economics, Springer, vol. 23(1), pages 129-161, January.
    4. Colciago, Andrea & Etro, Federico, 2010. "Real business cycles with Cournot competition and endogenous entry," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1101-1117, December.
    5. Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
    6. 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.
    7. Tiago Neves Sequeira & Pedro Mazeda Gil & Oscar Afonso, 2016. "Growth without scale effects due to entropy," FEP Working Papers 575, Universidade do Porto, Faculdade de Economia do Porto.

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