International Competition, Growth and Optimal R&D Subsidies
In this paper I examine the effects of international technological competition on innovation, growth, and optimal R&D subsidies. I focus on a particular dimension of competition: the share of industries where domestic and foreign research firms compete for innovation. In a version of the fully-endogenous quality-ladder growth model I show that the effect of competition on innovation and growth depends on the specification of the research technology. Secondly, I find that increases in foreign competition trigger a business-stealing effect that reduces income and welfare and, regardless of the innovation effect, raises the optimal domestic R&D subsidy. Intuitively, the higher the threat of international competition the more instrumental innovation subsidies will be in helping domestic incumbent firms to retain their shares of the global market. Thirdly, I perform a quantitative exercise: I first build an empirical index of international technological competition and find that in the OECD countries the share of competitive sectors increased from 35 percent in 1973 to 70 percent in 1989. Then, I use this evidence to evaluate the optimality of the U.S. R&D subsidy response to observed competition in that period. I find a welfare loss of the observed policy, relative to the optimal, ranging between 0.2 and 0.5 percentage points of quality-adjusted per-capita consumption. Finally, I extend the model to account for strategic policy complementarities and show that the positive effect of competition on the optimal subsidy is robust to this set up. In addition, I find that competition increases the benefits from R&D policy cooperation.
|Date of creation:||03 Dec 2006|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Susanto Basu, 1996.
"Procyclical Productivity: Increasing Returns or Cyclical Utilization?,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 111(3), pages 719-751.
- Susanto Basu, 1995. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," NBER Working Papers 5336, National Bureau of Economic Research, Inc.
- Sapir, Andre & Aghion, Philippe & Bertola, Giuseppe & Hellwig, Martin & Pisani-Ferry, Jean & Rosati, Dariusz & Vinals, Jose & Wallace, Helen, 2004. "An Agenda for a Growing Europe: The Sapir Report," OUP Catalogue, Oxford University Press, number 9780199271498, April.
- André Sapir & Philippe Aghion & Giuseppe Bertola & Martin Hellwig & Jean Pisani-Ferry & Bernard Lange & José Viñals & Helen Wallace & Marco Buti & Mario Nava & Peter Smith, 2004. "An agenda for a growing Europe: the Sapir report," ULB Institutional Repository 2013/8070, ULB -- Universite Libre de Bruxelles.
- Jones, Charles I & Williams, John C, 2000. "Too Much of a Good Thing? The Economics of Investment in R&D," Journal of Economic Growth, Springer, vol. 5(1), pages 65-85, March.
- Charles I. Jones & John C. Williams, "undated". "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 95006, Stanford University, Department of Economics.
- Charles I. Jones & John C. Williams, 1999. "Too Much of a Good Thing? The Economics of Investment in R&D"," Working Papers 99015, Stanford University, Department of Economics.
- Charles I. Jones & John C. Williams, "undated". "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 96005, Stanford University, Department of Economics.
- Charles I. Jones & John C. Williams, 1999. "Too Much of a Good Thing? The Economics of Investment in R&D," NBER Working Papers 7283, National Bureau of Economic Research, Inc.
- John C. Williams & Charles I. Jones, 1995. "Too much of a good thing? The economics of investment in R&D," Finance and Economics Discussion Series 95-39, Board of Governors of the Federal Reserve System (U.S.).
- Jones, C-I & Williams, J-C, 1996. "Too Much of a Good Thing? The Economics of Investment in R&D," Papers 538, Harvard - Institute for International Development.
- Daniele Archibugi & Alberto Coco, 2005. "Is Europe Becoming the Most Dynamic Knowledge Economy in the World?," Journal of Common Market Studies, Wiley Blackwell, vol. 43(3), pages 433-459, 09.
- Guerrieri, Paolo & Milana, Carlo, 1991. "Technological and Trade Competition in High-Tech Products," UCAIS Berkeley Roundtable on the International Economy, Working Paper Series qt9x69f873, UCAIS Berkeley Roundtable on the International Economy, UC Berkeley.
- Mathias Thoenig & Thierry Verdier, 2003. "A Theory of Defensive Skill-Biased Innovation and Globalization," American Economic Review, American Economic Association, vol. 93(3), pages 709-728, June.
- Thoenig, Mathias & Verdier, Thierry, 2002. "A Theory of Defensive Skill-based Innovation and Globalization," CEPR Discussion Papers 3416, C.E.P.R. Discussion Papers.
- Albert Link, 1999. "Public/Private Partnerships In The United States," Industry and Innovation, Taylor & Francis Journals, vol. 6(2), pages 191-217.
- French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
- Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
- Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
- Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05.
- Prantl, Susanne & Howitt, Peter & Griffith, Rachel & Blundell, Richard & Aghion, Philippe, 2004. "Entry and Productivity Growth: Evidence From Microlevel Panel Data," Scholarly Articles 4481510, Harvard University Department of Economics.
- G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3, January.
- repec:hoo:wpaper:e-93-1 is not listed on IDEAS
- Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
- Guido Cozzi, "undated". "Can Social Norms Affect the International Allocation of Innovation?," Working Papers 2008_02, Business School - Economics, University of Glasgow.
- Guido Cozzi & Giammario Impullitti, "undated". "Technology Policy and Wage Inequality," Working Papers 2008_23, Business School - Economics, University of Glasgow, revised Oct 2006. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:red:sed006:739. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.