EconPapers    
Economics at your fingertips  
 

Innovation union: costs and benefits of innovation policy coordination

Teodora Borota, Fabrice Defever () and Giammario Impullitti

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: In this paper, we document large heterogeneity in innovation policy and performance between old and new EU member states, and present firm-level evidence on the close link between foreign direct investment (FDI) spillovers and eastern European _firms' innovation. Guided by these facts and motivated by the pressing debate on further EU integration, we build a two-region endogenous growth model to analyse the gains from innovation policy cooperation in an economic union. The two regions, the West (the old members) and the East (the new post-2004 members), feature firms competing in innovation for market leadership, are integrated via free trade and costly technology transfer via FDI and have different innovation performance and policy. Calibrating the model to reproduce key features of the EU economy, we compare the outcomes of an East-West R&D subsidy war with a cooperation scenario with unified subsidy across regions, and obtain three main results. First, we find that the dynamic gains spurring from the impact of cooperation on the economy's growth rate are sizable and substantially larger than the static gains obtained internalising the strategic motive for subsidies. Second, our model suggests that the presence of FDI and multinational production alleviates the strategic motive and increases the gains from cooperation. Third, separating FDI and innovation policy generates larger gains from cooperation, a policy complementarity driven by the knowledge spillovers carried by FDI.

Keywords: Optimal innovation policy; growth theory; international policy coordination; EU integration; FDI spillovers (search for similar items in EconPapers)
JEL-codes: F12 F42 F43 O31 O38 O41 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-cdm, nep-cse, nep-ino, nep-int, nep-sbm, nep-tid and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://cep.lse.ac.uk/pubs/download/dp1640.pdf (application/pdf)

Related works:
Working Paper: Innovation union: costs and benefits of innovation policy coordination (2019) Downloads
Working Paper: Innovation union: Costs and benefits of innovation policy coordination (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1640

Access Statistics for this paper

More papers in CEP Discussion Papers from Centre for Economic Performance, LSE
Bibliographic data for series maintained by ().

 
Page updated 2022-01-19
Handle: RePEc:cep:cepdps:dp1640