Cross-country Knowledge Spillovers and Innovations in Less Developed Countries in the Context of the Schumpeterian Growth Model

Sergey Kondyan, Karine Yenokyan

Research output: Contribution to journalArticle

Abstract

We develop a theoretical model that focuses on the effects of international knowledge spillovers on the country’s horizontal (variety expansion) and vertical (quality-improving) R&D efforts in less developed countries (LDC). The novelty of the approach is that it studies the effect of cross-country knowledge spillovers in the framework of a second-generation endogenous growth model without scale effect. The structure of the market, the level of R&D expenditures, and the rate of economic growth are endogenously determined by the level of knowledge spillovers. The effect of cross-country knowledge spillovers on the return to R&D is ambiguous. It depends on the relative dominance of market interaction versus technological interaction among firms in LDC. The R&D expenditures by the firms in the developed countries may reduce incentives to vertical innovations in LDC; however, our results emphasize the importance of developing domestic R&D projects and improving the efficiency of those projects for LDC rather than relying on foreign knowledge spillovers. In the presence of sunk costs, nonetheless, running efficient R&D projects is justified only when the country is relatively large in size.

Original languageEnglish
Pages (from-to)479-500
Number of pages22
JournalJournal of Industry, Competition and Trade
Volume19
Issue number3
DOIs
Publication statusPublished - Sep 15 2019

Keywords

  • Economic integration
  • Endogenous growth
  • Knowledge accumulation
  • Knowledge spillovers
  • Technological diffusion

ASJC Scopus subject areas

  • Industrial relations

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