Imitation Induced Innovation in General Equilibrium

This paper analyzes the effect of imitation on the rate of technological progress in an endogenous growth model. Quality leaders protect themselves from imitation by secondary development, which increases technological progress. Nevertheless, lower intellectual property rights protection reduces the incentives to enter the research sector which reduces innovation by outsiders. Simulations show that the net effect of increased imitation on the growth rate is ambiguous - it can be positive, negative, or inversely U-shaped, depending on the productivity of secondary research. Lower patent protection also reduces the degree of market power in the economy so that output, the wage rate, and welfare is typically increased.