Occupational choice and entrepreneurship: effects of R&D subsidies on economic growth |
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Authors: | Email authorView authors OrcID profile" target="_blank">Takaaki?MorimotoEmail authorView authors OrcID profile |
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Institution: | 1.Graduate School of Economics,Osaka University,Toyonaka,Japan;2.Institute of Social and Economic Research,Osaka University,Ibaraki,Japan |
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Abstract: | Most R&D-based growth models fail to explicitly account for the role of entrepreneurs in economic growth. By contrast, this study accounts for this factor and constructs an overlapping-generations model that includes entrepreneurial innovation and the occupational choice of becoming an entrepreneur or a worker. For the role of entrepreneurs, even a policy intended to encourage innovation can negatively affect economic growth. For the effect of such policies, I focus on the role of R&D subsidies. I show that while R&D subsidies promote entrepreneurs’ R&D activities, they increase workers’ wages by boosting labor demand. Thus, it is more attractive to be a worker, which reduces the number of entrepreneurs. Subsidies can have both a negative and positive effect on growth, which results in an inverted U-shaped relationship between R&D subsidies and growth. In addition, a growth-maximizing R&D subsidy rate exists, although this rate is too high to maximize the welfare level of any one generation. When individuals are heterogeneous in their abilities, R&D subsidies reduce intra-generational inequalities. |
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