Chu, Angus C. (2008): A Politico-Economic Analysis of the European Union’s R&D Policy.
Download (269kB) | Preview
This paper provides a politico-economic analysis of the European Union’s (EU) R&D policy. It develops an open-economy R&D-growth model characterized by two parameters that capture respectively the degree of technology spillover and the effectiveness of lobbying. In a non-cooperative equilibrium, each country chooses the level of R&D subsidy independently and fails to internalize technology spillover. Consequently, R&D subsidy is underprovided. In an economic union, the central government internalizes technology spillover but is vulnerable to lobbying by politicians from each country, who attempt to free-ride on the central government budget. Consequently, R&D subsidy is overprovided; however, this overprovision becomes less severe as the degree of technology spillover increases. Therefore, technology spillover has a surprisingly positive effect on welfare in an economic union. As for the effect on relative welfare, there is a cutoff value for the degree of technology spillover such that if and only if spillover is above this threshold, then an economic union dominates independent countries in welfare. Furthermore, this threshold is an increasing function in the effectiveness of lobbying. This paper also considers the possibility that the EU faces a binding budget ceiling. In this case, lobbying on R&D subsidy exerts a distortionary effect on revenue allocation, and hence a welfare loss continues to exist.
|Item Type:||MPRA Paper|
|Original Title:||A Politico-Economic Analysis of the European Union’s R&D Policy|
|Keywords:||endogenous growth; policy coordination; lobbying; R&D subsidy|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy
O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
|Depositing User:||Angus C. Chu|
|Date Deposited:||09. Sep 2008 00:45|
|Last Modified:||12. Feb 2013 15:06|
1. Aghion, Phillippe; and Howitt, Peter (1992) “A Model of Growth through Creative Destruction” Econometrica, vol. 60, p. 323-351.
2. Bache, Ian; and George, Stephen (2006) “Politics in the European Union” Oxford Press.
3. Bradbury, John Charles; and Crain, W. Mark (2001) “Legislative Organization and Government Spending: Cross-Country Evidence” Journal of Public Economics, vol. 82, p. 309-325.
4. Chu, Angus C. (2008) “Special Interest Politics and Intellectual Property Rights: An Economic Analysis of Strengthening Patent Protection in the Pharmaceutical Industry” Economics & Politics, vol. 20, p. 185-215.
5. Chu, Angus C.; and Yang C. C. (2008) “Fiscal Centralization and Tragedy of the Commons in an Endogenous-Growth Model: A Differential-Game Approach” Institute of Economics, Academia Sinica Working Paper.
6. Drazen, Allan (2000) “Political Economy in Macroeconomics” Princeton University Press.
7. Eaton, Jonathan; Gutierrez, Eva; and Kortum, Samuel (1998) “European Technology Policy” Economic Policy, vol. 27, p.405-438.
8. European Institute of Romania (2004) “The Required Directions for EU’s Institutional Development (Deepening) Related to Its Horizontal Development (Enlarging)” Pre-Accession Impact Studies III, Study no. 8. Available at: http://www.ier.ro/EN/index_en.html
9. Grossman, Gene M.; and Helpman, Elhanan (1991a) “Quality Ladders in the Theory of Growth” Review of Economic Studies, vol. 58, p. 43-61.
10. Grossman, Gene M.; and Helpman, Elhanan (1991b) “Endogenous Product Cycles” Economic Journal, vol. 101, p. 1241-1229.
11. Grossman, Gene M.; and Helpman, Elhanan (1994) “Protection for Sale” American Economic Review, vol. 84, p. 833-850.
12. Grossman, Gene M.; and Helpman, Elhanan (2001) “Special Interest Politics” The MIT Press.
13. Grossman, Gene M.; and Lai, Edwin L.-C. (2004) “International Protection of Intellectual Property” American Economic Review, vol. 94, p. 1635-1653.
14. Impullitti, Giammario (2007) “International Schumpeterian Competition and Optimal R&D Subsidies” European University Institute Working Papers 2007/55.
15. Impullitti, Giammario (2008) “International Competition and U.S. R&D Subsidies: A Quantitative Welfare Analysis” European University Institute Working Papers 2008/14.
16. Jones, Charles I. (1995a) “Time Series Tests of Endogenous Growth Models” Quarterly Journal of Economics, vol. 110, p. 495-525.
17. Jones, Charles I. (1995b) “R&D-Based Models of Economic Growth” Journal of Political Economy, vol. 103, p. 759-784.
18. Jones, Charles I. (1999) “Growth: With or Without Scale Effects” American Economic Review Papers and Proceedings, vol. 89, p. 139-144.
19. Jones, Charles I.; and Williams, John C. (1998) “Measuring the Social Return to R&D” Quarterly Journal of Economics, vol. 113, p. 1119-1135.
20. Jones, Charles I.; and Williams, John C. (2000) “Too Much of a Good Thing? The Economics of Investment in R&D” Journal of Economic Growth, vol. 5, p. 65-85.
21. Langenberg, Pieter (2004) “The Role of the Member States in the European Union” in P. W. Meerts and F. Cede (eds), Negotiating European Union, Basingstoke: Palgrave Macmillan.
22. Peretto, Pietro F. (1999) “Cost Reduction, Entry, and the Interdependence of Market Structure and Economic Growth” Journal of Monetary Economics, vol. 43, p. 173-195.
23. Peretto, Pietro F. (2007) “Corporate Taxes, Growth and Welfare in a Schumpeterian Economy” Journal of Economic Theory, vol. 137, p. 353-382.
24. Persson, Torsten; and Tabellini, Guido (1994) “Does Centralization Increase the Size of Government?” European Economic Review, vol. 38, p. 765-773.
25. Persson, Torsten; and Tabellini, Guido (2000) “Political Economics: Explaining Economic Policy” The MIT Press.
26. Segerstrom, Paul S. (1998) “Endogenous Growth without Scale Effects” American Economic Review, vol. 88, p. 1290-1310.
27. Segerstrom, Paul S. (2000) “The Long-Run Growth Effects of R&D Subsidies” Journal of Economic Growth, vol. 5, p. 227-305.
28. Weingast, Barry R.; Shepsle, Kenneth A.; and Johnsen, Christopher (1981) “The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics” Journal of Political Economy, vol. 89, p. 642-664.