High - Technology Subsidies in General Equilibrium : A Sector - Specific Approach

We use a specific-factor model to exarnine the conditions under which policymakers are able to increase aggregate production of high-tech goods by production or R&D-subsidies in the short and long-mn. The difficulties for the policy-makers in designing a subsidy scheme that succeeds in expanding aggregate high-tech production involve taking into account the trade-off between resources used in R&D and production of high-tech goods, the relative impact of different R&D activities on productivity, and the ease with which resources may be attracted from the non-high-tech sector of the economy to the various high-tech industries. JEL Classijications: Fll, F12 * We thank two anonymous referees and participants at seminars in International Economics in Lund, at CREDIT in Nottingham, and at IUI (The Industrial Institute for Economic and Social Research) for valuable comments and suggestions. We have also benefited from discussions with Peter Neary. Financial support from the Nordic Economic Research Council and the Tore Browaldh foundation is gratefully acknowledged.