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Patent Puzzle, Inflation, and Internal Financial Constraint

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  • Suzuki, Keishun

Abstract

Although Schumpeterian growth models typically predict that stronger patent protection enhances innovation-driven economic growth, the empirical evidence does not support this idea. We explore the unclear relationship at work by shedding light on the financing of R&D investment. Empirically, R&D-intensive firms preferentially rely on their internal cash flows rather than external funds. We develop a simple monetary Schumpeterian growth model in which R&D firms face an endogenous financing choice that is consistent with this evidence. In our model, the scale of R&D investment may be financially constrained by internal cash because external financing is costly. Our model shows that the relationship between patent protection and growth can be either N-shaped, inverted-U shaped, or positive depending on the inflation rate. Specifically, we find that the growth effect of the pro-patent policy is likely to be negative under a high inflation rate, while the growth effect is always positive under the Friedman rule.

Suggested Citation

  • Suzuki, Keishun, 2020. "Patent Puzzle, Inflation, and Internal Financial Constraint," MPRA Paper 101937, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:101937
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Innovation; Patent Protection; Inflation; Financing of R&D;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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