Inflation and Innovation in a Schumpeterian Economy with North–South Technology Transfer

Angus Chu, Guido Cozzi, Yuichi Furukawa and Chih-Hsing Liao

Journal of Money, Credit and Banking, 2019, vol. 51, issue 2-3, 683-719

Abstract: This study analyzes how inflation affects innovation and international technology transfer via cash‐in‐advance constraints on R&D. We consider a North–South quality‐ladder model that features innovative Northern R&D and adaptive Southern R&D. We find that higher Southern inflation causes a permanent decrease in technology transfer, a permanent increase in the North–South wage gap, and a temporary decrease in the Northern innovation rate. Higher Northern inflation causes a temporary decrease in the Northern innovation rate, a permanent decrease in the North–South wage gap, and ambiguous effects on technology transfer. Finally, we calibrate the model to China–U.S. data to perform a quantitative analysis.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:51:y:2019:i:2-3:p:683-719

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