Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/106517
Authors: 
Grüning, Patrick
Year of Publication: 
2015
Series/Report no.: 
SAFE Working Paper Series 83
Abstract: 
This paper studies a two-country production economy with complete and frictionless financial markets and international trade of final goods in which competition in R&D leads to endogenous new firm creation and economic growth. Current monopolists ("incumbents") and potential new firms ("entrants") compete in developing patents domestically. I find that this induces negative spillover in consumption, i.e. home country's consumption decreases in response to positive productivity shocks in the foreign country. Second, there is positive spillover in R&D expenditures, i.e. home country's R&D expenditures increase in response to positive foreign productivity shocks, which is consistent with empirical evidence on international technology diffusion. Furthermore, the stylized fact in international macroeconomics that the cross-country correlation of consumption growth is significantly lower than the one of output growth is explained by the model. Fourth, net exports are negatively correlated with output as in the data. Fifth, the model matches the high comovement of the risk-free rates and stock returns across countries. Finally, the model produces a positive value premium.
Subjects: 
Innovation
Product Market Competition
Endogenous Growth
Long-run Risk
International Finance
JEL: 
E22
F31
G12
O30
O41
Document Type: 
Working Paper

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