Innovation union: costs and benefits of innovation policy coordination

Milicevic, Teodora Borota, Defever, Fabrice, Impullitti, Giammario and Spencer, Adam Hal (2019) Innovation union: costs and benefits of innovation policy coordination. CEP Discussion Papers (CEPDP1640). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We build a two-region endogenous growth model to analyse the gains from innovation policy cooperation in an economic union. The model is calibrated to two blocks of the EU: the old and new members. R&D subsidy coordination is motivated by the distortion from subsidy competition, the strategic motive, and by intertemporal knowledge spillovers, which drive growth. The ideas production function features decreasing returns, making growth semi-endogenous, where policy affects growth temporarily. We compute gains from harmonised subsidies, chosen in each region to maximise EU welfare, with respect to competitive and observed subsidies. First, we find substantial gains to coordination, which derive exclusively from the strategic motive. Second, extending to include endogenous idea flows via FDI gives knowledge spillovers as the main driver of coordination gains. Third, extending to fully endogenous growth gives similar results. Fourth, conclusions based on steady state analysis have misleading optimal subsidies and overstate the estimated gains.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2019 The Author(s)
Divisions:	LSE
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions T Technology
JEL classification:	O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O38 - Government Policy F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
Date Deposited:	14 Feb 2020 14:36
Last Modified:	14 Sep 2024 04:08
URI:	http://eprints.lse.ac.uk/id/eprint/103400

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