Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 506: The Long-Run Growth Effects of R&D Subsidies

Paul S. Segerstrom
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Paul S. Segerstrom: The Research Institute of Industrial Economics, Postal: P O Box 5501, SE-114 85 Stockholm, Sweden

Abstract: This paper presents a model of R&D-driven growth without scale effects where firms can engage in both horizontal and vertical R&D activities. Unlike in earlier models of R&D-driven growth without scale effects by Jones (1995), Segerstrom (1998) and Young (1998), R&D subsidies can have long-run growth effects. Indeed, for a wide range of parameter values, a permanent increase in the R&D subsidy rate decreases the long-run rate of economic growth. An intuitive explanation for why R&D subsidies sometimes retard growth and sometimes promote growth is provided.

Keywords: Economic growth; R&D

JEL-codes: O32; O41

36 pages, November 5, 1998

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