Welfare and growth impacts of innovation policies in a small, open economy. An applied general equilibrium analysis
Working paper
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http://hdl.handle.net/11250/180195Utgivelsesdato
2007Metadata
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- Discussion Papers [1002]
Sammendrag
We explore how innovation incentives in a small, open economy should be designed in order to
achieve the highest welfare and growth, by means of a computable general equilibrium model with
R&D-driven endogenous technological change embodied in varieties of capital. We study policy
alternatives targeted towards R&D, capital varieties formation, and domestic investments in capital
varieties. Subsidising domestic investments, thereby excluding stimuli to world market deliveries,
generates less R&D, capital formation, economic growth, and welfare, than do the other alternatives,
reflecting that the domestic market for capital varieties is limited. Directing support to R&D rather
than to capital formation generates stronger economic growth, a higher number of patents and
capital varieties, and a higher share of R&D in total production. However, it costs in terms of lower
production within each firm, where presence of sunk patent costs and mark-ups result in efficiency
losses. The welfare result is, thus, slightly lower.
Keywords: Applied general equilibrium, Endogenous growth, Research and Development
Utgiver
Statistics Norway, Research DepartmentSerie
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