Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192492 
Year of Publication: 
2007
Series/Report no.: 
Discussion Papers No. 510
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
We explore how innovation incentives in a small, open economy should be designed in order to achieve the highest welfare and growth, by means of a computable general equilibrium model with R&D-driven endogenous technological change embodied in varieties of capital. We study policy alternatives targeted towards R&D, capital varieties formation, and domestic investments in capital varieties. Subsidising domestic investments, thereby excluding stimuli to world market deliveries, generates less R&D, capital formation, economic growth, and welfare, than do the other alternatives, reflecting that the domestic market for capital varieties is limited. Directing support to R&D rather than to capital formation generates stronger economic growth, a higher number of patents and capital varieties, and a higher share of R&D in total production. However, it costs in terms of lower production within each firm, where presence of sunk patent costs and mark-ups result in efficiency losses. The welfare result is, thus, slightly lower.
Subjects: 
Applied general equilibrium
Endogenous growth
Research and Development
JEL: 
C68
E62
H32
O38
O41
Document Type: 
Working Paper

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