Working Paper: NBER ID: w2913
Authors: Gene M. Grossman; Elhanan Helpman
Abstract: We construct a model of the product cycle featuring endogenous innovation and endogenous technology transfer. Competitive entrepreneurs in the North expend resources to bring out new products whenever expected present discounted value of future oligopoly profits exceeds current product development costs. Each Northern oligopolist continuously faces the risk that its product will be copied by a Southern imitator, at which time its profit stream will come to an end. In the South, competitive entrepreneurs may devote resources to learning the production processes that have been developed in the North. There too, costs (of reverse engineering) must be covered by a stream of operating profits. We study the determinants of the long-run rate of growth of the world economy, and the long-run rate of technological diffusion. We also provide an analysis of the effects of exogenous events and of public policy on relative wage rates in the two regions.
Keywords: Product Cycle; Innovation; Technology Transfer; International Trade
JEL Codes: F12; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment in innovation (O35) | Development of new products (O36) |
| Threat of southern imitation (L15) | Duration of profit streams from new products (C41) |
| Variations in labor forces (J21) | Steady-state rates of innovation and imitation (O39) |
| Steady-state rates of innovation and imitation (O39) | Relative wages (J31) |
| Structural characteristics of trading blocs and resource productivity (F12) | Growth rate of the world economy (F62) |
| Public policies (H59) | Technological diffusion (O33) |