Buy, Keep, or Sell: Economic Growth and the Market for Ideas
An endogenous growth model is developed where each period firms invest in researching and developing new ideas. An idea increases a firm's productivity. By how much depends on the technological propinquity between an idea and the firm's line of business. Ideas can be bought and sold on a market for patents. A firm can sell an idea that is not relevant to its business or buy one if it fails to innovate. The developed model is matched up with stylized facts about the market for patents in the United States. The analysis gauges how efficiency in the patent market affects growth.
Does the Technological Content of Government Demand Matter for Private R&D? Evidence from US States
American Economic Journal: Macroeconomics,
Governments purchase everything from airplanes to zucchini. This paper investigates the role of the technological content of government procurement in innovation. In a theoretical model, we first show that a shift in the composition of public purchases toward high-tech products translates into higher economy-wide returns to innovation, leading to an increase in the aggregate level of private R&D. Using unique data on federal procurement in US states and performing panel fixed-effects estimations, we find support for the model's prediction of a positive R&D effect of the technological content of government procurement. Instrumental-variable estimations suggest a causal interpretation of our findings.
Transition to Clean Technology
Journal of Political Economy,
We develop an endogenous growth model in which clean and dirty technologies compete in production. Research can be directed to either technology. If dirty technologies are more advanced, the transition to clean technology can be difficult. Carbon taxes and research subsidies may encourage production and innovation in clean technologies, though the transition will typically be slow. We estimate the model using microdata from the US energy sector. We then characterize the optimal policy path that heavily relies on both subsidies and taxes. Finally, we evaluate various alternative policies. Relying only on carbon taxes or delaying intervention has significant welfare costs.
Is More Finance Better? Disentangling Intermediation and Size Effects of Financial Systems
Journal of Financial Stability,
Financial systems all over the world have grown dramatically over recent decades. But is more finance necessarily better? And what concept of financial system – a focus on its size, including both intermediation and other auxiliary “non-intermediation” activities, or a focus on traditional intermediation activity – is relevant for its impact on real sector outcomes? This paper assesses the relationship between the size of the financial system and intermediation, on the one hand, and GDP per capita growth and growth volatility, on the other hand. Based on a sample of 77 countries for the period 1980–2007, we find that intermediation activities increase growth and reduce volatility in the long run. An expansion of the financial sectors along other dimensions has no long-run effect on real sector outcomes. Over shorter time horizons a large financial sector stimulates growth at the cost of higher volatility in high-income countries. Intermediation activities stabilize the economy in the medium run especially in low-income countries. As this is an initial exploration of the link between financial system indicators and growth and volatility, we focus on OLS regressions, leaving issues of endogeneity and omitted variable biases for future research.
Transfer Payments without Growth: Evidence for German Regions, 1992–2005
International Journal of Urban and Regional Research,
After German reunification, interregional subsidies accounted for approximately 4% of gross fixed capital investment in the new federal states (i.e. those which were formerly part of the German Democratic Republic). We show that, between 1992 and 2005, infrastructure and corporate investment subsidies had a negative net impact on regional economic growth and convergence. This result is robust to both the specification of spatially weighted control variables and the use of instrumental variable techniques to control for the endogeneity of subsidies. Our results suggest that regional redistribution was ineffective, potentially due to a lack of spatial concentration to create growth poles.
The Impact of Government Procurement Composition on Private R&D Activities
Jena Economic Research Papers, Nr. 2011-036,
This paper addresses the question of whether government procurement can work as a de facto innovation policy tool. We develop an endogenous growth model with quality-improving in-novation that incorporates industries with heterogeneous innovation sizes. Government demand in high-tech industries increases the market size in these industries and, with it, the incentives for private ﬁrms to invest in R&D. At the economy-wide level, the additional R&D induced in high-tech industries outweighs the R&D foregone in all remaining industries. The implications of the model are empirically tested using a unique data set that includes federal procurement in U.S. states. We ﬁnd evidence that a shift in the composition of government purchases toward high-tech industries indeed stimulates privately funded company R&D.