A Schumpeterian Model of Entrepreneurship, Innovation, and Regional Economic Growth
Amitrajeet A. Batabyal
Rochester Institute of Technology
VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)
May 10, 2011
RIT Economics Department Working Paper No. 11-05
Vrije Universiteit Amsterdam Research Memorandum No. 2011-07
We provide the first theoretical analysis of a one-sector, discrete-time, Schumpeterian model of growth in a regional economy in which consumers are risk neutral, there is no population growth, monopolistic entrepreneurs produce intermediate goods, and a single consumption good is produced competitively. Our analysis generates several new results. In the deterministic model, R&D in time t surely leads to an innovation in time t 1. In this setting, we show that relative to the balanced growth path (BGP) equilibrium, the social planner always allocates more labor to R&D and hence achieves a larger size of innovation and a higher growth rate. Next, in the stochastic model, R&D in time t probabilistically leads to an innovation in time t 1. In this setting, we first define the equilibrium and the steady state BGP allocations. Second, we generalize the notion of the steady state and determine the number of unemployed workers. Third, we show that our regional economy experiences bursts of unemployment followed by periods of full employment. Finally, we show that a decline in the time discount rate increases the average growth rate and the average unemployment.
Number of Pages in PDF File: 36
Keywords: Creative Destruction, Dynamic, Entrepreneur, Innovation, Regional Economy, Stochastic
JEL Classification: R10, E10, O31working papers series
Date posted: May 12, 2011
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