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Occupational choice and entrepreneurship: effects of R&D subsidies on economic growth

Takaaki Morimoto ()
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Takaaki Morimoto: Osaka University

Journal of Economics, 2018, vol. 123, issue 2, 161-185

Abstract: Abstract Most R&D-based growth models fail to explicitly account for the role of entrepreneurs in economic growth. By contrast, this study accounts for this factor and constructs an overlapping-generations model that includes entrepreneurial innovation and the occupational choice of becoming an entrepreneur or a worker. For the role of entrepreneurs, even a policy intended to encourage innovation can negatively affect economic growth. For the effect of such policies, I focus on the role of R&D subsidies. I show that while R&D subsidies promote entrepreneurs’ R&D activities, they increase workers’ wages by boosting labor demand. Thus, it is more attractive to be a worker, which reduces the number of entrepreneurs. Subsidies can have both a negative and positive effect on growth, which results in an inverted U-shaped relationship between R&D subsidies and growth. In addition, a growth-maximizing R&D subsidy rate exists, although this rate is too high to maximize the welfare level of any one generation. When individuals are heterogeneous in their abilities, R&D subsidies reduce intra-generational inequalities.

Keywords: Endogenous growth; Occupational choice; Entrepreneurship; R&D subsidy (search for similar items in EconPapers)
JEL-codes: J24 O31 O41 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:jeczfn:v:123:y:2018:i:2:d:10.1007_s00712-017-0549-1