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EFFECTS OF R&D SUBSIDIES IN A HYBRID MODEL OF ENDOGENOUS GROWTH AND SEMI-ENDOGENOUS GROWTH

Published online by Cambridge University Press:  07 September 2020

Angus C. Chu  and
Xilin Wang
Angus C. Chu
Affiliation:
University of Liverpool
Xilin Wang*
Affiliation:
Fudan University
*
Address correspondence to: Xilin Wang, China Center for Economic Studies, School of Economics, Fudan University, Shanghai, China. e-mail: [email protected].
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Abstract

We explore R&D subsidies in a hybrid growth model which may exhibit semi-endogenous growth or fully endogenous growth. We consider two types of subsidies on variety-expanding innovation and quality-improving innovation. R&D subsidies on quality-improving innovation only have effects in the fully endogenous-growth regime, in which more subsidies cause an earlier activation of quality-improving innovation and increase the transitional/steady-state growth rate. R&D subsidies on variety-expanding innovation have contrasting effects in the two regimes. In the semi-endogenous-growth regime, more subsidies on variety-expanding innovation increase transitional growth but have no effect on steady-state growth. In the fully endogenous-growth regime, more subsidies on variety-expanding innovation continue to increase short-run growth but delay the activation of quality-improving innovation and reduce long-run growth. Increasing subsidies on variety-expanding (quality-improving) innovation makes the semi-endogenous-growth (fully endogenous-growth) regime more likely to emerge. Finally, we calibrate the model and find that under reasonable parameter values, the fully endogenous-growth regime is more likely to emerge.

Keywords

R&D SubsidiesInnovationEndogenous Growth Regimes
Type
Notes
Information
Macroeconomic Dynamics , Volume 26 , Issue 3 , April 2022 , pp. 813 - 832
Copyright
© Cambridge University Press 2020

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Footnotes

The authors are grateful to an anonymous Referee for helpful comments. Wang gratefully acknowledges financial support from the National Natural Science Foundation of China (grant no. 71773020) and from the Ministry of Education of China for the Youth Project in Humanities and Social Sciences (20YJC790090). The usual disclaimer applies.

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