Product and Process Innovation, Keynesian Unemployment, and Economic Growth

Sasaki, Hiroaki (2020): Product and Process Innovation, Keynesian Unemployment, and Economic Growth.

Abstract

In economic growth theory, product innovation and process innovation are important factors behind technological progress. This study builds an economic growth model that considers product and process innovation and theoretically investigates how these two types of innovation affect the economic growth rate and unemployment rate. Our model, based on that developed by Zagler (2004), allows us to make the following three main findings. We find that (1) an increase in the efficiency of product innovation increases both the economic growth rate and the unemployment rate; (2) an increase in the efficiency of process innovation increases the economic growth rate and does not affect the unemployment rate; and (3) in the R\&D sector, a decrease in the labor allocation to product innovation and an increase in the labor allocation to process innovation increase the economic growth rate and decrease the unemployment rate depending on the conditions. These findings suggest that to both raise employment and increase economic growth, we need not only a policy for fostering product innovation but also another policy to improve employment.

• Item Type: MPRA Paper
• Language: English
• Keywords: effective demand; notional demand; unemployment; economic growth; product and process innovation; monopolistic competition
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models

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