Animal Spirits and the Composition of Innovation in a Lab-Equipment R&D Model

Pedro Gil

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: We revisit the issue of self-fulfilling “waves of enthusiasm” as stationary rational expectations equilibrium outcomes in endogenous-growth models that merge the quality-ladders with the expanding-variety mechanism. By considering a lab-equipment specification with vertical-innovation intertemporal spillovers but no intersectoral spillovers, we extend previous results of a negative impact of animal spirits on both horizontal aggregate R&D and number of firms to a framework where decreasing returns to horizontal entry are not a necessary condition. In contrast, our general-equilibrium setting allows us to predict an effect of animal spirits on R&D composition impacting neither on aggregate growth nor on aggregate vertical R&D, as reduced outlays in “mature” industries compensate for the increased R&D intensity in newly-born industries.

Keywords: endogenous growth; horizontal and vertical R&D; stationary sunspot equilibria (search for similar items in EconPapers)
JEL-codes: D43 E32 L16 O41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2009-09
New Economics Papers: this item is included in nep-dge, nep-ent, nep-ino and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:por:fepwps:336

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