Business cycles, innovation and growth: welfare analysis
Marcin Bielecki ()
No 2017-19, Working Papers from Faculty of Economic Sciences, University of Warsaw
Endogenous growth literature treats deliberate R&D effort as the main engine of long-run growth. It has been already recognized that R&D expenditures are procyclical. This paper builds a microfounded model that generates procyclical aggregate R&D investment as a result of optimizing behavior by heterogeneous monopolistically competitive firms. I find that business cycle fluctuations affect the aggregate endogenous growth rate of the economy so that transitory shocks leave lasting level effects on the economy’s Balanced Growth Path. This result stems from both procyclical R&D expenditures of the incumbents and procyclical firm entry rates. This mechanism generates economically significant hysteresis effects, increasing the welfare cost of business cycles by two orders of magnitude relative to the exogenous growth model. Coupled with potential to affect endogenous growth rates, ample space for welfare improving policy interventions arises. The paper evaluates the effects of selected subsidy schemes and finds some of them welfare improving.
Keywords: business cycles; firm dynamics; innovation; growth; welfare analysis (search for similar items in EconPapers)
JEL-codes: E32 E37 L11 O31 O32 O38 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ino, nep-mac, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
https://www.wne.uw.edu.pl/index.php/download_file/3733/ First version, 2017 (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2017-19
Access Statistics for this paper
More papers in Working Papers from Faculty of Economic Sciences, University of Warsaw Contact information at EDIRC.
Bibliographic data for series maintained by Marcin Bąba ().