Endogenous innovation scale and patent policy in a monetary Schumpeterian growth model

Yu, Po-yang and Lai, Ching-Chong (2022): Endogenous innovation scale and patent policy in a monetary Schumpeterian growth model.

Abstract

This paper develops a monetary R&D-driven endogenous growth model featuring endogenous innovation scales and the price-marginal cost markup. To endogenize the step size of quality improvement, we propose a trade-off mechanism between the risk of innovation failure and the benefit of innovation success in R&D firms. Several findings emerge from the analysis. First, a rise in the nominal interest rate decreases economic growth; however, its relationship with social welfare is ambiguous. Second, either strengthening patent protection or raising the professional knowledge of R&D firms leads to an ambiguous effect on economic growth. Third, the Friedman rule of a zero nominal interest rate fails to be optimal in view of the social welfare maximum. Finally, our numerical analysis indicates that the extent of patent protection and the level of an R&D firm’s professional knowledge play a crucial role in determining the optimal interest rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: intellectual property rights; economic growth; endogenous innovation scales; endogenous markups; inflation
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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