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Innovation and imitation in a product-cycle model with FDI and cash-in-advance constraints

Hung-Ju Chen

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the effects of monetary policy on innovation and imitation in a North-South product-cycle model with foreign direct investment (FDI) and separate cash-in-advance (CIA) constraints on innovative R&D, adaptive R&D and imitative R&D. We find that if the CIA constraint is applied to innovative R&D, then an increase in the Northern nominal interest will raise the rate of Northern innovation and the extent of FDI while reducing the rate of Southern imitation and the North-South wage gap. Regarding the effects of the Southern monetary policy, the object that is liquidity-constrained plays a significant role. If adaptive (imitative) R&D is subject to the CIA constraint, then an increase in the Southern nominal interest rate will raise (reduce) the rate of Northern innovation and the extent of FDI while reducing (raising) the rate of Southern imitation. We also examine the responses of social welfare for Northern and Southern consumers to monetary policy.

Keywords: CIA constraint; FDI; Imitation; Monetary policy; R&D. (search for similar items in EconPapers)
JEL-codes: F12 F23 O31 (search for similar items in EconPapers)
Date: 2015-04, Revised 2015-04
New Economics Papers: this item is included in nep-cse, nep-ino, nep-knm, nep-mac and nep-sbm
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Related works:
Journal Article: Innovation and imitation in a product-cycle model with FDI and cash-in-advance constraints (2018) Downloads
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