Subsidies, Entry, and Economic Growth in a Schumpeterian Model with Incumbents and Entrants

You-Xun Lu, Shi-kuan Chen and Ching-chong Lai

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the effects of various subsidies on economic growth and growth composition in a Schumpeterian model with incumbents and entrants. The main results can be summarized as follows. Subsidizing the production of intermediate goods or subsidizing incumbents’ in-house R&D serves to promote economic growth. However, the growth effect of the subsidy on entrants’ R&D can be positive or negative, depending on the level of the fixed entry cost. Moreover, we show that various types of subsidies have different effects on the entry of new firms and market structure. Finally, we calibrate the model and find that the subsidy on intermediate goods production is more effective than R&D subsidies in terms of promoting growth and raising welfare.

Keywords: innovation; subsidies; economic growth; market structure; incumbents and entrants (search for similar items in EconPapers)
JEL-codes: O31 O38 O40 (search for similar items in EconPapers)
Date: 2022-02-10
New Economics Papers: this item is included in nep-gro, nep-sbm and nep-tid
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https://mpra.ub.uni-muenchen.de/112373/9/MPRA_paper_112373.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:112179

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