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Aggregate Implications of Innovation Policy

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  • Andrew Atkeson
  • Ariel T. Burstein

Abstract

We examine the quantitative impact of policy-induced changes in innovative investment by firms on growth in aggregate productivity and output in a fairly general specification of a model of growth through firms’ investments in innovation that nests several commonly used models in the literature. We present simple analytical results isolating the specific features and parameters of the model that play the key roles in shaping its quantitative implications for the aggregate impact of policy-induced changes in innovative investment in the short, medium and long-term and for the socially optimal innovation intensity. We find that under the assumption of no social depreciation of innovation expenditures (a common assumption in Neo-Schumpeterian models), the model’s implications for the elasticity of aggregate productivity and output over the medium-term horizon (i.e. 20 years) with respect to policy-induced changes in the innovation intensity of the economy are largely disconnected from the parameters that determine the model’s long-run implications and the socially optimal innovation intensity of the economy. We find, in contrast, that plausibly calibrated models based on the Expanding Varieties framework can imply substantial social depreciation of innovation expenditures and a tighter link between the model’s medium-term and long-term elasticities of aggregate productivity and output with respect to policy-induced changes in the innovation intensity of the economy.

Suggested Citation

  • Andrew Atkeson & Ariel T. Burstein, 2011. "Aggregate Implications of Innovation Policy," NBER Working Papers 17493, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17493 Note: EFG
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    References listed on IDEAS

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    Cited by:

    1. Aghion, Philippe & Akcigit, Ufuk & Fernández-Villaverde, Jesús, 2012. "Optimal Capital Versus Labor Taxation with Innovation-Led Growth," Scholarly Articles 27755236, Harvard University Department of Economics.
    2. Steve Raymond & Lukas Schmid & Anastasios Karantounias & Mariano Croce, 2017. "A Tax Plan for Endogenous Innovation," 2017 Meeting Papers 109, Society for Economic Dynamics.
    3. Martin Beraja, 2017. "Counterfactual Equivalence in Macroeconomics," 2017 Meeting Papers 1400, Society for Economic Dynamics.
    4. Nicolas Serrano-Velarde & Douglas Hanley & Ufuk Akcigit, 2012. "Back to Basics: Basic Research Spillovers, Innovation Policy and Growth," 2012 Meeting Papers 665, Society for Economic Dynamics.
    5. Maarten de Ridder, 2016. "Investment in Productivity and the Long-Run Effect of Financial Crises on Output," Discussion Papers 1630, Centre for Macroeconomics (CFM).
    6. Dhritman Bhattacharya & Nezih Guner & Gustavo Ventura, 2013. "Distortions, Endogenous Managerial Skills and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 11-25, January.
    7. repec:fip:fedfel:00146 is not listed on IDEAS
    8. Klenow, Peter J. & Li, Huiyu, 2017. "Missing Growth from Creative Destruction," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    9. de Ridder, Maarten, 2016. "Investment in productivity and the long-run effect of financial crises on output," LSE Research Online Documents on Economics 86180, London School of Economics and Political Science, LSE Library.
    10. Nezih Guner & Andrii Parkhomenko & Gustavo Ventura, 2018. "Managers and Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 256-282, July.
    11. Timo Boppart & Peter Klenow & Huiyu Li & Antonin Bergeaud & Philippe Aghion, 2017. "Missing Growth from Creative Destruction," 2017 Meeting Papers 759, Society for Economic Dynamics.
    12. Bøler, Esther Ann & Moxnes, Andreas & Ulltveit-Moe, Karen-Helene, 2012. "Technological Change, Trade in Intermediates and the Joint Impact on Productivity," CEPR Discussion Papers 8884, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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