Pareto Optimal Pro-cyclical Research and Development

R. Braun and Tomoyuki Nakajima

No CIRJE-F-617, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: We develop a perfectly competitive endogenous growth model in which R&D is the engine of growth. Our model generates pro-cyclical R&D investment and labor input as a pareto optimal response to technology shocks to the consumption and equipment good sectors. The model also reproduces a variety of facts from the U.S. economy. Growth in R&D capital accounts for 75 percent of the growth rate of GNP and the decline in the relative price of equipment investment. Investment in each sector is pro-cyclical. Our results suggest that equipment shocks may be less important than the previous literature has found. After accounting for the endogenous response of R&D, equipment sector shocks only account for a small fraction of the variance in the growth rate of GNP.

Pages: 27 pages
Date: 2009-03
New Economics Papers: this item is included in nep-dge and nep-ino
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2009cf617

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