Economic Growth, Patent Race, and the Distribution of R&D Firms

The paper constructs a general equilibrium model model where the rate of technical progress and the distribution of R&D expenditure by heterogeneous research firms are simultaneously determined. Using the model, we explore the effects of the following policy measures on those two endogenous variables: (i) subsidies to flow variable R&D costs, (ii) subsidies to flow fixed R&D costs, (iii) an increase in entrant firms into a series of patent races, and (iv) an increase in the supply of human capital as inputs to R&D. Contrasting results are demonstrated. For example, subsidies to flow variable R&D costs promote technical progress and induce the exit of R&D firms with low R&D productivity. That is, the policy accelerates technological progress through R&D by "elite" firms. On the other hand, the opposite result holds if subsidies are applied to flow fixed R&D costs.