Innovative vs. imitative R&D and economic growth

This paper develops a multi-sector dynamic general equilibrium growth model, in which innovation improves product quality and imitation expands product variety and both innovation and imitation can occur simultaneously in the same sector. Within the analytical framework so developed, we show that (i) subsidizing innovation and taxing imitation are not necessarily equivalent in terms of their effects on imitation; (ii) an innovation subsidy always speeds up economic growth while an imitation subsidy always does the opposite; and (iii) the welfare effects of both innovation and imitation subsidies are ambiguous. (C) 2001. Elsevier Science B.V. All rights reserved.