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Innovation, Inequality and a Golden Rule for Growth in an Economy with Cobb-Douglas Function and an R&D Sector

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  • Paul J.J. Welfens

    (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))

Abstract

The innovative approach presented introduces a modified neoclassical growth model which includes a new bias of technological progress in a quasi-endogenous growth model in which part of labor is used in the research & development sector. The combination of a macroeconomic production function and a new progress function, plus the assumption that the output elasticity of capital is positively influenced by the size of the R&D sector, sheds new light on innovation and growth as well as income inequality: Thus there is a new approach for explaining Piketty's historical findings of a medium term rise of the capital income share in industrialized countries - both in the earlier and later part of the 19th century and in 1990-2010. In the approach presented herein, the golden rule issues are also highlighted and it is shown that choosing the right size of the R&D sector will bring about maximum sustainable per capita consumption. While the basic new model is presented for the case of a closed economy, one could easily accommodate both trade and foreign direct investment and thereby get a better understanding of complex international investment, trade and FDI dynamics - including with respect to the envisaged Transatlantic Trade and Investment Partnership.

Suggested Citation

  • Paul J.J. Welfens, 2015. "Innovation, Inequality and a Golden Rule for Growth in an Economy with Cobb-Douglas Function and an R&D Sector," EIIW Discussion paper disbei206, Universitätsbibliothek Wuppertal, University Library.
  • Handle: RePEc:bwu:eiiwdp:disbei206
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    References listed on IDEAS

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    Cited by:

    1. Naudé, Wim & Nagler, Paula, 2017. "Technological Innovation and Inclusive Growth in Germany," IZA Discussion Papers 11194, Institute of Labor Economics (IZA).
    2. Wim Naudé & Paula Nagler, 2018. "Technological Innovation, Entrepreneurship and Productivity in Germany, 1871-2015," SPRU Working Paper Series 2018-02, SPRU - Science Policy Research Unit, University of Sussex Business School.
    3. Naudé, Wim & Nagler, Paula, 2021. "The Rise and Fall of German Innovation," IZA Discussion Papers 14154, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Innovation; Growth; Inequality; Golden Rule; Piketty;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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