Hostname: page-component-8448b6f56d-c47g7 Total loading time: 0 Render date: 2024-04-16T14:47:20.099Z Has data issue: false hasContentIssue false
  • English
  • Français

SUBSIDIES IN AN ECONOMY WITH ENDOGENOUS CYCLES OVER INVESTMENT AND INNOVATION REGIMES

Published online by Cambridge University Press:  24 May 2013

Bei Li  and
Jie Zhang
Bei Li
Affiliation:
University of Western Australia
Jie Zhang*
Affiliation:
Chongqing University and National University of Singapore
*
Address correspondence to: Jie Zhang, Department of Economics, National University of Singapore, Singapore117570; e-mail: ecszj@nus.edu.sg.
Get access Rights & Permissions [Opens in a new window]

Abstract

We explore the roles of subsidies in the Matsuyama model [K. Matsuyama, Econometrica 67 (1999), 335–347] of growth through cycles with a Solow investment phase and a Romer innovation phase when innovation and intermediate goods production rely on existing capital. We show that subsidies to R&D investment or to the purchase of new intermediate goods can arbitrarily reduce the threshold level of capital per type of intermediate good beyond which the economy moves to the innovation phase. Sufficient subsidization can eventually eliminate cycles. For plausible parameterizations, optimal subsidies can achieve significant welfare gains equivalent to as much as 10% rises in consumption at all times.

Keywords

SubsidizationInnovationCapital AccumulationCyclesGrowth
Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 6 , September 2014 , pp. 1351 - 1382
Copyright
Copyright © Cambridge University Press 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aghion, P. and Howitt, P. (1992) A model of growth through creative destruction. Econometrica 60, 323–351.Google Scholar
Aloi, M. and Lasselle, L. (2007) Growth and welfare effects of stabilizing innovation cycles. Journal of Macroeconomics 29, 806–823.Google Scholar
Barro, R.J. and Sala-i-Martin, X. (1995) Economic Growth. New York: McGraw-Hill.Google Scholar
Bental, B. and Peled, D. (1996) The accumulation of wealth and the cyclical generation of new technologies: A search theoretic approach. International Economic Review 37 (3), 687–718.Google Scholar
Cass, D. (1965) Optimum growth in an aggregative model of capital accumulation. Review of Economic Studies 32, 233–240.Google Scholar
Comin, D. and Gertler, M. (2006) Medium-term business cycles. American Economic Review 96, 523–551.Google Scholar
Comin, D. and Mulani, S. (2009) A theory of growth and volatility at the aggregate and firm level. Journal of Monetary Economics 56, 1023–1042.Google Scholar
Devaney, R.L. (1989) An Introduction to Chaotic Dynamical Systems. New York: Addison-Wesley.Google Scholar
Fan, J. (1995) Endogenous technical progress, R&D periods and durations of business cycles. Journal of Evolutionary Economics 5, 341–368.Google Scholar
Francois, P. and Lloyd-Ellis, H. (2003) Animal spirit through creative destruction. American Economic Review 93 (3), 530–550.Google Scholar
Francois, P. and Shi, S. (1999) Innovation, growth, and welfare-improving cycles. Journal of Economic Theory 85, 226–257.Google Scholar
Freeman, S., Hong, D., and Peled, D. (1999) Endogenous cycles and growth with indivisible technological developments. Review of Economic Dynamics 2, 403–432.Google Scholar
Gardini, L., Sushko, I., and Naimzada, A.K. (2008) Growing through chaotic intervals. Journal of Economic Theory 143, 541–557.Google Scholar
Gordon, R., Kalambokidis, L., Rohaly, J., and Slemrod, J. (2004a) Toward a consumption tax and beyond. American Economic Review 94, 161–165.Google Scholar
Gordon, R., Kalambokidis, L., and Slemrod, J. (2004b) Do we now collect any revenue from taxing capital income? Journal of Public Economics 88, 981–1009.Google Scholar
Grossman, J. and Helpman, E. (1991) Quality ladders in the theory of growth. Review of Economic Studies 58, 43–61.Google Scholar
Haruyama, T. (2009) R&D policy in a volatile economy. Journal of Economic Dynamics and Control 33, 1761–1778.CrossRefGoogle Scholar
Helpman, E. and Trajtenberg, M. (1998) A time to sow and a time to reap: Growth based on general purpose technologies. In Helpman, E. (ed.), General Purpose Technologies and Economic Growth, pp. 85–19. Cambridge, MA: MIT Press.Google Scholar
Koopmans, T.C. (1965) On the concept of optimal economic growth. In The Econometric Approach to Development Planning, pp. 225–300. Amsterdam: North Holland.Google Scholar
Kydland, F.E. and Prescott, E.C. (1982) Time to build and aggregate fluctuations. Econometrica 50, 1345–1370.Google Scholar
Long, J.B. and Plosser, C.I. (1983) Real business cycles. Journal of Political Economy 91, 39–69.Google Scholar
Maliar, L. and Maliar, S. (2004) Endogenous growth and endogenous business cycles. Macroeconomic Dynamics 8, 559–581.Google Scholar
Matsuyama, K. (1996) Growing through Cycles. CMS-EMS working paper 1203, Northwestern University.Google Scholar
Matsuyama, K. (1999) Growing through cycles. Econometrica 67, 335–347.Google Scholar
Matsuyama, K. (2001) Growing through cycles in an infinitely lived agent economy. Journal of Economic Theory 100, 220–234.Google Scholar
OECD (2011) OECD Science, Technology and Industry Scoreboard 2011. Paris: OECD Publishing.Google Scholar
Parente, S.L. (1994) Technology adoption, learning-by-doing, and economic growth. Journal of Economic Growth 63, 346–369.Google Scholar
Romer, P. (1990) Endogenous technological change. Journal of Political Economy 98, S71–102.Google Scholar
Segerstrom, P. (1991) Innovation, imitation, and economic growth. Journal of Political Economy 99, 807–827.Google Scholar
Solow, R. (1956) A contribution to the theory of economic growth. Quarterly Journal of Economics 70, 65–94.Google Scholar
Walde, K. (2002) The economic determinants of technology shocks in a real business cycle. Journal of Economic Dynamics and Control 27, 1–28.Google Scholar
Walde, K. (2005) Endogenous growth cycles. International Economic Review 46 (3), 867–894.Google Scholar
Young, A. (1993) Invention and bounded learning by doing. Journal of Political Economy 101, 443–472.Google Scholar
Zeng, J. and Zhang, J. (2007) Subsidies in an R&D growth model with elastic labor. Journal of Economic Dynamics and Control 31, 861–886.Google Scholar