Working Paper: CEPR ID: DP1489
Authors: David Currie; Paul Levine; Joseph Pearlman; Michael Chui
Abstract: In this paper, we develop a North-South endogenous growth model to examine three phases of development in the South: imitation of Northern products; imitation and innovation; and finally, innovation only. In particular, the model has the features of catching up (and potentially overtaking), which are of particular relevance to the Pacific Rim economies. We show that the possible equilibria depend on cross-country assimilation effects and the ease of imitation. We then apply the model to analyse the impact of R&D subsidies. There are some clear global policy implications which emerge from our analysis. First, because subsidies to Southern innovation benefit the North as well, it is beneficial to the North to pay for some of these subsidies. Second, because the ability of the South to assimilate Northern knowledge and innovate depends on Southern skills levels, the consequent spillover benefits on growth make the subsidizing of Southern education by the North particularly attractive.
Keywords: innovation; imitation; subsidies; growth
JEL Codes: F43; O41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| subsidies to southern innovation (O38) | growth benefits in the north (O51) |
| southern knowledge assimilation (D83) | higher overall growth rates (O40) |
| skill levels in the south (J24) | greater spillover benefits to growth (F62) |
| subsidies to southern education (H52) | enhanced ability to innovate (O36) |
| enhanced ability to innovate (O36) | positive feedback loop that benefits both regions (F69) |
| subsidies to imitation in the south (O38) | lower global steady-state growth rates (F62) |
| subsidies to southern innovation (O38) | raise global steady-state growth rates (O40) |