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
JournalJournal of Industry, Competition and Trade
DOIs
Publication statusPublished - Jan 1 2019

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Schumpeterian growth
Less developed countries
Knowledge innovation
Growth model
Knowledge spillovers
Expenditure
Developed countries
Endogenous growth model
Vertical innovation
Market interaction
Sunk costs
Scale effect
Economic growth
Novelty
Incentives
Interaction

Keywords

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

ASJC Scopus subject areas

  • Industrial relations

Cite this

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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.",
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N2 - 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.

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