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Growth leaders

  • Etro, Federico

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.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 30 (2008)
Issue (Month): 3 (September)
Pages: 1148-1172

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Handle: RePEc:eee:jmacro:v:30:y:2008:i:3:p:1148-1172
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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