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Animal Spirits and the Composition of Innovation in a Lab-Equipment R&D Model

  • Pedro Rui Mazeda Gil

    ()

    (CEF.UP and Faculdade de Economia, Universidade do Porto)

We revisit the issue of self-fulfilling “waves of enthusiasm” as stationary rational expectations equilibrium outcomes in endogenous-growth models that merge the quality-ladders with the expanding-variety mechanism. By considering a lab-equipment specification with vertical-innovation intertemporal spillovers but no intersectoral spillovers, we extend previous results of a negative impact of animal spirits on both horizontal aggregate R&D and number of firms to a framework where decreasing returns to horizontal entry are not a necessary condition. In contrast, our general-equilibrium setting allows us to predict an effect of animal spirits on R&D composition impacting neither on aggregate growth nor on aggregate vertical R&D, as reduced outlays in “mature” industries compensate for the increased R&D intensity in newly-born industries.

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File URL: http://www.fep.up.pt/investigacao/workingpapers/09.09.25_wp336.pdf
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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 336.

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Length: 25 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:por:fepwps:336
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