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Scope of Innovations, Knowledge Spillovers and Growth

  • Gray, Elie
  • Grimaud, André
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    This paper exploits the formalization of a circular product differentiation model of Salop (1979) to propose an endogenous growth quality ladder model in which the knowledge inherent in a given sector can spread variously across the sectors of the economy, ranging from local to global influence. Accordingly, this affects the size of the pool of knowledge in which innovations draw themselves on in order to be produced. Therefore, the law of knowledge accumulation, and thus the growth rate of the economy, depend positively on the expected scope of diffusion of innovations, i.e. on the intensity of knowledge spillovers. This approach generalizes the endogenous growth theory as developed in the seminal models of Grossman & Helpman (1991) and Aghion & Howitt (1992), extending their analysis to the possibility of considering stochastic and partial knowledge spillovers. This framework allows us to mitigate the positive externality of knowledge and thus to apprehend the issue of the funding of research with more parsimony. We characterize the set of steady-state Schumpeterian equilibria as a function of the public tools. We provide an explanation for the fact that research effort can either be suboptimal or over-optimal, depending on the expected scope of knowledge. Accordingly, we find that the optimal public tool dedicated to foster R&D activity depends positively on it.

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    Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 10-161.

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    Date of creation: Mar 2010
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    Handle: RePEc:tse:wpaper:22693
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    1. Xavier Sala-i-Martin, 1995. "Transfers, social safety nets and economic growth," Economics Working Papers 139, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    3. Andre Grimaud & Luc Rouge, 2004. "Polluting non-renewable resources, tradeable permits and endogenous growth," International Journal of Global Environmental Issues, Inderscience Enterprises Ltd, vol. 4(1/2/3), pages 38-57.
    4. Cozzi, Guido & Giordani, Paolo E. & Zamparelli, Luca, 2007. "The refoundation of the symmetric equilibrium in Schumpeterian growth models," Journal of Economic Theory, Elsevier, vol. 136(1), pages 788-797, September.
    5. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634, June.
    6. Philippe Aghion & Diego Comin & Peter Howitt, 2006. "When Does Domestic Saving Matter for Economic Growth?," DEGIT Conference Papers c011_030, DEGIT, Dynamics, Economic Growth, and International Trade.
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