The Importance of Industrial Policy in Quality-Ladder Growth Models

Paolo E. Giordani and Luca Zamparelli ()

MPRA Paper from University Library of Munich, Germany

Abstract: We extend the class of quality-ladder growth models (Grossman- Helpman (1991), Segerstrom (1998) and others), to encompass an economy with asymmetric fundamentals. In contrast to the standard framework, in our model industries may di¤er in terms of their innovative potential (quality jumps and arrival rates) and consumers’preferences. This extension allows us to bring industrial policy back into the realm of the growth policy debate. We rst show that it is always possible to raise the long-run growth rate and the social welfare of the economy through a costless tax/subsidy scheme reallocating resources towards the relatively more promising industries. We then prove that, in certain economies, even a mere pro t taxation policy increases economic growth and social welfare above the laissez-faire.

Keywords: Innovation-Driven Growth; Asymmetric Fundamentals; Industrial Policy (search for similar items in EconPapers)
JEL-codes: O38 O41 O32 (search for similar items in EconPapers)
Date: 2007
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Journal Article: The Importance of Industrial Policy in Quality-Ladder Growth Models (2008)
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