This article presents an endogenous growth model that is designed to be roughly consistent with the experience of high-tech firms like Intel. In the model, industry leaders invest in R&D to improve their products, small firms invest in R&D to become industry leaders, and innovating becomes progressively more difficult over time. Consistent with the empirical evidence, the model implies that economic growth is independent of economy size and R&D intensity is independent of firm size. For plausible parameter values, it is optimal to heavily subsidize R&D activities. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
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Volume (Year): 48 (2007)
Issue (Month): 1 (02)
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