The Engine of Growth

Federico Etro ()

No 100, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: I develop a Schumpeterian model where the engine of growth is in the microeconomic structure of the patent races and derive new results on the determinants of growth. Under decreasing marginal productivity in the R&D sector, the equilibrium is characterized by small firms investing too little and the growth process is dynamically ine?cient; the optimal policy for innovation always implies R&D subsidies. When the incumbent monopolists are leaders in the patent races, they engage in large R&D investment and their persistent leadership enhances growth. Other sources of growth may reduce investment inducing a paradoxical negative correlation between growth and R&D spending even if innovations are the main engine of growth. In the open economy, growth is driven by the largest country and increases with its relative size and openness. In a monetary economy, price stickiness induces an inverted U relation between inflation and long run growth.

Keywords: Growth; Innovation (search for similar items in EconPapers)
JEL-codes: F4 O3 O4 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2006-10, Revised 2006-10
New Economics Papers: this item is included in nep-dev, nep-ino, nep-ipr and nep-pr~
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:100

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