Endogenous Growth Without Scale Effects: Comment

Abstract

am grateful to Philippe Aghion, Julia Darby and Elias Dinopoulos for their valuable comments. Needless to say, I am solely responsible for opinions and all remaining errors.

Does the Technological Content of Government Demand Matter for Private R&D? Evidence from US States

“…In previous quality-ladder growth models (Grossman and Helpman, 1991b,a;Aghion and Howitt, 1992;Li, 2001Li, , 2003, different industries were usually treated as being structurally identical. Thus, the economy could be regarded as if it consisted of only a single industry.…”

Defensive strategies in quality ladders

“…For the sake of simplicity we formalise our argument using a semiendogenous quality-ladders model without scale e¤ects. The basic setup is based on Li (2003), which generalises Segerstrom's (1998) framework to consider imperfect interindustry substitutability. To remove steady state scale e¤ects, Li (2003) assumes that as quality improves new discoveries need more R&D e¤ort.…”

“…The basic setup is based on Li (2003), which generalises Segerstrom's (1998) framework to consider imperfect interindustry substitutability. To remove steady state scale e¤ects, Li (2003) assumes that as quality improves new discoveries need more R&D e¤ort. At equilibrium the innovation rate will not depend on the size of labour allocated to R&D but on the rate of population growth.…”

The Importance of Industrial Policy in Quality-Ladder Growth Models

“…is removed, 4 Particular attention has been devoted to the relation between the optimal subsidy and the size of innovation. Grossman and Helpman (1991) found it to be n-shaped; in Segerstom (1998) the optimal subsidy is a monotonic negative function of the innovation size, while Li's (2003) model implies the optimal subsidy to be positive for 'low' and 'high' levels of innovation size but not for intermediate ones.…”

“…describes an asymmetric 'zero-sum policy', that is, a policy which can only redistribute resources from one industry to another, leaving the public budget exactly balanced. Interestingly, a comparison of the research intensities across the two policy rules shows 8 that it is always possible to improve upon the laissez-faire equilibrium through a costless system of tax/subsidy which reallocates resources towards the relatively more promising indutries. By continuity, it is then possible to implement a tax/subsidy scheme which enhances economic performance as well as social welfare and, at the same time, guarantees a strictly positive tax revenue for the government.…”