On R&D spillovers, multiple equilibria and indeterminacy |
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Authors: | Been-Lon Chen Angus C Chu |
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Institution: | 1. Institute of Economics, Academia Sinica, Taipei, Taiwan 2. School of Economics, Shanghai University of Finance and Economics, Shanghai, China
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Abstract: | Empirical studies often find significant and positive R&D spillovers across firms. In this note, we incorporate this spillover
effect into a scale-invariant quality-ladder model. We find that the modified model features multiple steady states (1) a
high-R&D steady state, (2) a low-R&D steady state and (3) a zero-R&D steady state. As for dynamics, when R&D spillovers are
small, only the zero-R&D steady state is stable, and it emerges as a no-growth trap. In this case, the economy is subject
to sunspot fluctuations around this trap (i.e., local indeterminacy). When R&D spillovers are large, both the zero-R&D and
high-R&D steady states are stable and locally indeterminate. In this case, increasing patent breadth may cause the high-R&D
steady state to become unstable and the economy to converge to the no-growth trap. Therefore, strengthening patent protection
may stifle innovation through the occurrence of a bifurcation. |
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