Phases of Imitation and Innovation in a North-south Endogenous Growth Model

In this paper, we develop a North-South endogenous growth model to examine three phases of development in the South: imitation of Northern products, imitation and innovation and nally, innovation only. In particular, the model has the features of catching up (and potentially overtaking) which are of particular relevance to the Paci c Rim economies. We show that the possible equilibria depend on cross-country assimilation e ects and the ease of imitation. We then apply the model to analyse the impact of R&D subsidies. There are some clear global policy implications which emerge from our analysis. Firstly, because subsidies to Southern innovation bene t the North as well, it is bene cial to the North to pay for some of these subsidies. Secondly, because the ability of the South to assimilate Northern knowledge and innovate depends on Southern skills levels, the consequent spillover bene ts on growth make the subsidising of Southern education by the North particularly attractive.