Economic growth and economic development 600

Introduction to Modern Economic Growth can imagine that once the patent runs out, the firm will cease making profits on its innovation In this case, it can easily be shown that growth is maximized by having as long patents as possible Again there is a tradeoff here between the equilibrium growth rate of the economy and the static level of welfare Perhaps, more important than these trade-offs between growth and level is the fact that the models discussed in this chapter not feature an interesting type of competition among firms The quality competition (Schumpeterian) models introduced in the next chapter will allow a richer analysis of the effect of competition on innovation and economic growth 13.2 Growth with Knowledge Spillovers In the model of the previous section, growth resulted from the use of final output for R&D This is similar, in some way, to the endogenous growth model of Rebelo (1991) we studied in Chapter 11, since the accumulation equation is linear in accumulable factors As a result, we saw that, in equilibrium, output took a linear form in the stock of knowledge (new machines), thus a AN form instead of the Rebelo’s AK form An alternative is to have “scarce factors” used in R&D In other words, instead of the lab equipment specification, we now have scientists as the key creators of R&D The lab equipment model generated sustained economic growth by investing more and more resources in the R&D sector This is impossible with scarce factors, since, by definition, a sustained increase in the use of these factors in the R&D sector is not possible Consequently, with this alternative specification, there cannot be endogenous growth unless there are knowledge spillovers from past R&D, making the scarce factors used in R&D more and more productive over time In other words, we now need current researchers to “stand on the shoulder of past giants” In fact, the original formulation of the endogenous technological change model by Romer (1990) relied on this type of knowledge-spillovers, assuming that researchers indeed stand on the shoulders of past giants as part While these types of knowledge spillovers might be important in practice, the lab equipment model studied in the previous section was a better starting point for us, since it clearly delineated the 586