R&D Policy in Economies with Endogenous Growth and Non-Renewable Resources
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Universidad de Granada. Departamento de Teoría e Historia Económica
Endogenous growthR&D (Research and Development)Non-renewable resourcesOverlapping generationsInfinitely lived agentsBalanced growth path
Agnany, B.; Gutiérrez, M.J.; Iza, A. R&D Policy in Economies with Endogenous Growth and Non-Renewable Resources. Universidad de Granada. Departamento de Teoría e Historia Económica (2007). (The Papers; 07/09). [http://hdl.handle.net/10481/31508]
SponsorshipFinancial support from the Spanish Ministry of Education and Science, through Projects SEJ2006-12793/ECON, SEJ2007-62081/ECON and SEJ2006-10827/ECON, and Universidad del PaÌs Vasco through Grupo de InvestigaciÛn Consolidado UPV GIU06/41.
The aim of this paper is to analyze how active R&D policies affect the growth rate of an economy with endogenous growth and non-renewable resources. We know from Scholz and Ziemens (1999) and Groth (2006) that in infinitely lived agents (ILA) economies, any active R&D policy increases the growth rate of the economy. To see if this result also appears in economies with finite lifetime agents, we developed an endogenous growth overlapping generations (OLG) economy à la Diamond which uses non-renewable resources as essential inputs in final good’s production. We show analytically that a sufficient condition guaranteeing that an active R&D policy increases the growth rate of the economy actually implies a reduction of the use of the non-renewable resources. Numerically we show that in economies with low intertemporal elasticity of substitution (IES), active R&D policies lead the economy to increase the depletion of non-renewable resources. Nevertheless, we find that active R&D policies always imply increases in the endogenous growth rate, in both scenarios. Furthermore, when the IES coefficient is lower (greater) than one, active R&D policies affect the growth rate of the economy in the ILA more (less) than in OLG economies.