Participants: SSSUP, BIU, ISI, UParis2
Objectives:
We will be analyzing the interaction of basic scientific advances and innovative economic applications in a multi-country or multi-region (within and/or between countries) framework. We will extend the current view of technological innovation by adopting the following additional assumptions.
(i) We will assume that the agents in a large and finite number of sites (regions and countries) can undertake purely scientific research in a constant number, A, of disciplines (say, biology, science materials, physics, mathematics, etc.).
(ii)At the same time, firms are trying to develop an increasing range of applications, B, yielding market profits (better drugs in different therapeutic areas, better computers, etc.) by exploiting the proximity of top scientific ideas in their regions.
The objectives of this work package are as follows:
Checking the basic solution of the exogenous (Ramsey (1928) - Cass(1965) - Koopmans (1965)) and endogenous (Romer (1986, 1990) - Grossman and Helpman (1991) - Aghion and Howitt (1992, 1996 and 1998)) economic growth models having included the AB model as state equation, where the A process describes the existence and development of inputs, while the B process represents capital. The solution paths, the steady states and the transition dynamics will be function of the A process. These paths are expected to lead to endogenous clusters of growth processes in some locations only. Statistics on the frequencies of these clusters will help to calibrate the model with respect on empirical situations.
The particular, the introduction of the AB model into the field of technological innovation and endogenous growth due to research and development of new products and processes at the international levels, is of particular interest. Focusing more, the above model, including the AB equation, will be applied to the Pharma sector for an empirical estimate of it.
Description of work
In particular, given the economic focus of our project, we will assume (consistently with the literature) that each economic application gets patented. Therefore it will cause the patent owner (typically a firm) to monopolize the corresponding industry, until a better product enters the same industry or until a competitive fringe manages to re-engineer an imitation of the product without incurring in patent law sanctions. Imitations annihilate the profit streams of the patent owner. Improvements transfer the profit streams within the same site or elsewhere. We will denote by B(t,i) the number of active monopolies in site i at time t. Notice that such monopolies produce differentiated goods (as in Helpman 1993, Howitt 1999, Segerstrom 2000, Aghion et al. 2001, Li 2003, etc.). Hence, each of them is the result of first horizontal innovations and/or of a series of vertical innovations within the site. When one of them disappears worldwide this denotes the fact that it has ceased to be monopolized (after a competitive imitation), which happens with a given probability intensity. Instead, when one of them disappears from a site i and reappears in another site, j, this means that a site quote is firm was able to innovate vertically on the same product. This kind of movement of monopoly rights happens randomly with another probability intensity. Hence the world best vintage of that product line would now be owned by site j. Throughout the model we will assume independent stochastic processes.
Calling A the number of active scientific fields, at every date there is a set of sites (of number less than or equal to A) that hold primacy in at least one of these fields. Provided all relevant fields have comparable research infrastructure, it is assumed that scientific primacy - following subsequent inventions - either remains where it is or it will move to a neighboring site, due to a better discovery allowed by a geographical knowledge spillovers. We will denote by A(t,i) the number of scientific fields in which site i is at the top of the art at time t. Local spillovers from basic research to industrial research and development (R&D) are assumed.
We will be investigating the dynamic general equilibrium implications of this technological set. In particular, we will analyze the conditions for aggregate growth and the dynamics of inter-country and inter-region inequality. The analysis will deliver suggestions for the policy of innovation in a multi-country setting in which spillovers are more likely in the neighboring economies. We will make use of both analytical and numerical techniques developed by the other members of the research project.
The novelty and complexity of this project, unparalleled in R&D driven growth theory, is in using the AB model as the source of technological innovation into the endogenous growth mechanism. Given the complexity of the model it can only be exploited in such an interdisciplinary group.
D4.1 The simplified growth model including the AB equation. M. 6
D4.3 A detailed innovation growth model. M.48
Milestone 1. At delivery 2. date, we will know how difficult is the implementation of step 3 with data and empirical research. On the contrary we will pursue the theoretical path. Expected result: is to change radically the concept of growth modeling.