R&D subsidies and economic growth

We present an endogenous growth model in which some firms devote resources to ner eloping higher-quality products (innovative R&D) and other firms devote resources to copying these products (imitative R&D). Although consumers benefit from the knowledge created by both types of R&D activities, only innovative R&D subsidies lead to faster economic growth; imitative R&D subsidies actually lead to slot-ver economic growth. A key assumption driving these conclusions is that R&D activities are subject to decreasing rearms. When R&D activities are subject to constant returns, as is commonly assumed, the only equilibrium with both innovation and imitation is unstable.