Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203289
Authors: 
Grüning, Patrick
Year of Publication: 
2016
Series/Report no.: 
SAFE Working Paper 83
Abstract: 
This paper studies a two-country production economy with complete and frictionless financial markets and international trade 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. These innovative firms use both consumption goods in their R&D technologies to capture international technological spillovers. In the model specifications with technology spillover one obtains that (i) the cross-country correlation of consumption growth is lower than the one of output growth; (ii) net exports are negatively correlated with output; (iii) the model matches the high co-movement of stock returns across countries. Furthermore, heterogeneity in the R&D technology bundle home bias parameters for incumbents and entrants enables the model to replicate the empirically rather moderate correlation between the R&D innovation probabilities of incumbents and entrants within a country. Moreover, the model produces a positive value premium. Finally, the exchange rate volatility is decreasing in the amount of technology spillovers.
Subjects: 
Innovation
Technology Spillover
Endogenous Growth
Long-run Risk
International Finance
JEL: 
E22
F31
G12
O30
O41
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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