Journal article
R&D subsidies in a model of growth with dynamic market structure
Journal of evolutionary economics, v 19(5), pp 643-673
2009
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
This paper presents the effects of an R&D subsidy in a Schumpeterian general equilibrium model with rich industry dynamics. R&D subsidies raise the long-run growth rate, but they also raise the level of industry concentration. In the model firms compete for market share through process R&D endogenously determining the market structure within and across industries. Endogeneity of the market structure allows for analysis of changes in the moments of the firm size distribution in response to policy. R&D subsidies primarily benefit large incumbent firms who increase their innovation rates creating a greater technological barrier to entry. Concentration increases with fewer firms and a higher variance in the market shares. In general equilibrium, the greater distortions in the product market cause the wage rate to fall which leads to increased turnover rates. In addition, the analysis demonstrates that the model captures a large number of empirical regularities described in the industrial organization literature, but absent from most endogenous growth models. These features, such as entering firms are small relative to incumbents, the hazard rate of exit is negatively related to firm size, and large firms spend more on R&D than small firms play important roles in understanding the impact of R&D subsidies on the economy.
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Details
- Title
- R&D subsidies in a model of growth with dynamic market structure
- Creators
- Christopher A. Laincz - Drexel University
- Publication Details
- Journal of evolutionary economics, v 19(5), pp 643-673
- Publisher
- Springer-Verlag
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000269853700002
- Scopus ID
- 2-s2.0-70349507167
- Other Identifier
- 991019168724004721
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- Web of Science research areas
- Economics