Inflation and Innovation in a Schumpeterian Economy with North-South Technology Transfer

Chu, Angus C. and Cozzi, Guido and Furukawa, Yuichi and Liao, Chih-Hsing (2013): Inflation and Innovation in a Schumpeterian Economy with North-South Technology Transfer. Forthcoming in: Journal of Money, Credit and Banking

Abstract

This study analyzes how inflation affects innovation and international technology transfer via cash-in-advance constraints on R&D. We consider a North-South quality-ladder model that features innovative Northern R&D and adaptive Southern R&D. We find that higher Southern inflation causes a permanent decrease in technology transfer, a permanent increase in the North-South wage gap, and a temporary decrease in the Northern innovation rate. Higher Northern inflation causes a temporary decrease in the Northern innovation rate, a permanent decrease in the North-South wage gap, and ambiguous effects on technology transfer. Finally, we calibrate the model to China-US data to perform a quantitative analysis.

• Item Type: MPRA Paper
• Language: English
• Keywords: inflation, economic growth, R&D, North-South product cycles, FDI
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights

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