A Schumpeterian Analysis of Monetary Policy, Innovation and North-South Technology Transfer

Angus Chu, Guido Cozzi and Yuichi Furukawa

MPRA Paper from University Library of Munich, Germany

Abstract: This study analyzes the cross-country effects of monetary policy on innovation and international technology transfer. We consider a scale-invariant North-South quality-ladder model that features innovative R&D in the North and adaptive R&D in the South. To model money demand, we impose cash-in-advance constraints on these two types of R&D investment. We find that an increase in the Southern nominal interest rate causes a permanent decrease in the rate of international technology transfer, a permanent increase in the North-South wage gap, and a temporary decrease in the rate of Northern innovation. An increase in the Northern nominal interest rate causes a temporary decrease in the rate of Northern innovation, a permanent decrease in the North-South wage gap, and an ambiguous effect on the rate of international technology transfer depending on the relative size of the two economies. We also calibrate the model to China-US data and find that the cross-country welfare effects of monetary policy are quantitatively significant. Specifically, permanently decreasing the nominal interest rate to zero in China leads to a welfare gain of 3.37% in China and a welfare gain of 1.25% in the US. Permanently decreasing the nominal interest rate to zero in the US leads to welfare gains of 0.33% in the US and 1.24% in China.

Keywords: monetary policy; economic growth; R&D; North-South product cycles; FDI (search for similar items in EconPapers)
JEL-codes: E4 F43 O3 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-ino, nep-mac and nep-mon
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https://mpra.ub.uni-muenchen.de/49533/1/MPRA_paper_49533.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/51927/1/MPRA_paper_51927.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/75711/9/MPRA_paper_75711.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/83076/1/MPRA_paper_83076.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/85627/1/MPRA_paper_85627.pdf revised version (application/pdf)

Related works:
Working Paper: A Schumpeterian Analysis of Monetary Policy, Innovation and North-South Technology Transfer (2013)
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