Endogenous Growth with Negative Intertemporal R&D Spillovers

Abstract

Semi-endogenous growth models propose that in the absence of population growth, consumption's long-run growth rate is zero. The reason are negative intertemporal R&D spillovers, motivated by the exhaustion of technological opportunities. In the present paper, we complement this exhaustion effect of  R&D by a positive productivity effect: a higher level of technical knowledge increases the profits that accrue to succesful innovators. Thus, even in the long run, R&D investment is profitable, and consumption's growth rate remains positive. Our model reinstates the essential result of endogenous growth theory according to which policy may affect the long-run growth rate. Furthermore, our model holds excessive growth as a possibility.