Aggregate Implications of Innovation Policy

101 Pages Posted: 8 Oct 2011 Last revised: 20 Apr 2022

See all articles by Andrew Atkeson

Andrew Atkeson

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Date Written: October 2011

Abstract

We examine the quantitative impact of policy-induced changes in innovative investment by firms on growth in aggregate productivity and output in a model that nests several of the canonical models in the literature. We isolate two statistics, the impact elasticity of aggregate productivity growth with respect to an increase in aggregate innovative investment and the degree of intertemporal knowledge spillovers in research, that play a key role in shaping the model’s predicted dynamic response of aggregate productivity, output, and welfare to a policy-induced change in the innovation intensity of the economy. Given estimates of these statistics, we find that there is only modest scope for increasing aggregate productivity and output over a 20-year horizon with uniform subsidies to firms’ investments in innovation of a reasonable magnitude, but the welfare gains from such a subsidy may be substantial.

Suggested Citation

Atkeson, Andrew G. and Burstein, Ariel T., Aggregate Implications of Innovation Policy (October 2011). NBER Working Paper No. w17493, Available at SSRN: https://ssrn.com/abstract=1940338

Andrew G. Atkeson (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
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National Bureau of Economic Research (NBER) ( email )

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Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
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Los Angeles, CA 90095-1477
United States
310-206-6732 (Phone)
310-825-9528 (Fax)

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