On R&D spillovers, multiple equilibria and indeterminacy

• Published in: Journal of economics (Vienna, Austria) Vol. 100; no. 3; pp. 247 - 263
• Main Authors: Chen, Been-Lon, Chu, Angus C
• Format: Journal Article
• Language: English
• Published: Vienna Vienna : Springer Vienna 01.07.2010; Springer-Verlag; Springer Vienna; Springer; Springer Nature B.V
• Subjects: Bifurcation; Discount rates; Dynamic modeling; Economic externalities; Economic fluctuations; Economic growth; Economic growth models; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Elasticity; Endogenes Wachstumsmodell; Endogenous-growth model; Entrepreneurs; Equilibrium; Game Theory; GDP; Gross Domestic Product; Growth models; Households; Indeterminacy; Industrial production; Innovations; Macroeconomics/Monetary Economics//Financial Economics; Microeconomics; Multiple equilibria; Neoklassisches Wachstumsmodell; Production functions; Productivity; Public Finance; R&D; R&D spillovers; Research & development; Research & development expenditures; Social and Behav. Sciences; Spillover effect; Spillover-Effekt; Steady state economies; Studies; Technischer Fortschritt; Technological innovation; Theorie; E32; Bifurcation; Multiple equilibria; Indeterminacy; O31; O41; Endogenous-growth model; R&D spillovers
• ISSN: 0931-8658; 1617-7134
• DOI: 10.1007/s00712-010-0132-5

Empirical studies often find significant and positive R&D spillovers across firms. In this note, we incorporate this spillover effect into a scale-invariant quality-ladder model. We find that the modified model features multiple steady states (1) a high-R&D steady state, (2) a low-R&D steady state and (3) a zero-R&D steady state. As for dynamics, when R&D spillovers are small, only the zero-R&D steady state is stable, and it emerges as a no-growth trap. In this case, the economy is subject to sunspot fluctuations around this trap (i.e., local indeterminacy). When R&D spillovers are large, both the zero-R&D and high-R&D steady states are stable and locally indeterminate. In this case, increasing patent breadth may cause the high-R&D steady state to become unstable and the economy to converge to the no-growth trap. Therefore, strengthening patent protection may stifle innovation through the occurrence of a bifurcation.