Lack of Entrepreneurial Skills and the Complexity of Technological Progress

In standard endogenous growth models, the higher the research e¤ort the higher is the innovation rate of the economy. Innovating, however, is a complex process that requires an entrepreneur to implement a valuable invention. Hence when research and entrepreneurial skills compete in the allocation of aggregate resources, the relation between growth and R&D is hump-shaped. This paper proposes a model of endogenous growth in which returns to R&D can be decreasing since research e¤ort crowds out more socially useful entrepreneurial skills. When so, innovation should be promoted by encouraging entrepreneurship rather than research. JEL Classi...cation: O32, O40, J24.