Substitution and Returns to Scale in R&D
نویسنده
چکیده
We build a quality ladders product cycle model with Northern innovation, Northern imitation, and Southern imitation. Our model generalizes Grossman and Helpman (1991a) to allow Northern imitation. Similar to Segerstrom (1991), successful Northern imitators collude with innovators. Changes in resources and R&D subsidies generate substitution in Northern R&D between innovation and imitation and substitution in imitation between the North and the South. Due to the shifting composition of Northern R&D, an increase in the di¢culty of innovation can generate seemingly decreasing returns to scale in Northern R&D: innovation remaining constant despite an expansion in the resources employed in Northern R&D.
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