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.
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Abstract
This study analyzes the cross-country effects of inflation on innovation and international technology transfer via cash-in-advance (CIA) constraints on R&D investment. We consider a scale-invariant North-South quality-ladder model that features innovative R&D in the North and adaptive R&D in the South. We find that a higher inflation in the South causes a permanent decrease in the rate of international technology transfer, a permanent increase in the North-South wage gap, and a temporary decrease in the rate of Northern innovation. A higher inflation in the North causes a temporary decrease in the rate of Northern innovation, a permanent decrease in the North-South wage gap, and an ambiguous effect on the rate of international technology transfer depending on the relative size of the two economies. We also calibrate the model to China-US data and find that the cross-country welfare effect of inflation is quantitatively significant from the North to the South, but not from the South to the North. Specifically, permanently decreasing inflation to achieve the Friedman rule in the US leads to a welfare gain of 3.28% in the US and a welfare gain of 3.31% in China. However, permanently decreasing inflation to achieve the Friedman rule in China leads to much smaller welfare gains of 0.34% in China and 0.17% in the US.
Item Type: | MPRA Paper |
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Original Title: | Inflation and Innovation in a Schumpeterian Economy with North-South Technology Transfer |
Language: | English |
Keywords: | monetary policy, 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 |
Item ID: | 75711 |
Depositing User: | Prof. Angus C. Chu |
Date Deposited: | 21 Dec 2016 15:44 |
Last Modified: | 26 Sep 2019 22:03 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/75711 |
Available Versions of this Item
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A Schumpeterian Analysis of Monetary Policy, Innovation and North-South Technology Transfer. (deposited 12 Sep 2013 16:59)
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Innovation and North-South Technology Transfer in a Cash-in-Advance Economy. (deposited 07 Dec 2013 04:53)
- Inflation and Innovation in a Schumpeterian Economy with North-South Technology Transfer. (deposited 21 Dec 2016 15:44) [Currently Displayed]
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Innovation and North-South Technology Transfer in a Cash-in-Advance Economy. (deposited 07 Dec 2013 04:53)