Abstract
The innovative approach presented introduces a modified neoclassical growth model which includes a new bias of technological progress in a quasi-endogenous growth model in which part of labor is used in the research & development sector. The combination of a macroeconomic production function and a new progress function, plus the assumption that the output elasticity of capital is positively influenced by the size of the R&D sector, sheds new light on innovation and growth as well as income inequality: Thus there is a new approach for explaining Piketty’s historical findings of a medium term rise of the capital income share in industrialized countries – both in the earlier and later part of the 19th century and in 1990–2010. A rising share of capital income can be explained within this approach by the increase in the output elasticity of capital, which has been developed in a new way, namely in the context of R&D. In the approach presented herein, the golden rule issues are also highlighted and it is shown that choosing the right size of the R&D sector will bring about maximum sustainable per capita consumption. While the basic new model is presented for the case of a closed economy, one could easily accommodate both trade and foreign direct investment and thereby get a better understanding of complex international investment, trade and FDI dynamics – including with respect to the envisaged Transatlantic Trade and Investment Partnership.
Similar content being viewed by others
References
Aghion P, Howitt P (2009) The economics of growth. MIT Press, Cambridge
Grossman G, Helpman E (1991) Quality ladders in the theory of growth. Rev Econ Stud 58:43–61
Jones CI (1995) R&D-based models of economic growth. J Polit Econ 103:759–784
Jungmittag A (2015) Techno-globalization as a new phenomenon: theory and empirical findings for OECD countries, paper presented at the AIT-EIIW workshop on Structural Change, Techno-Globalization and Lead Markets, Vienna, March 16, 2015
Kaldor N (1957) A model of economic growth. Econ J 67:591–624
Laurens P et al (2015) The rate and motives of the internationalisation of large firm R&D (1994–2005): towards a turing point? Res Policy 44:765–776
OECD Factbook 2011–2012 (2011) OECD Factbook 2011–2012: economic, environmental and social statistics, OECDiLibrary, December 2011
Phelps ES (1961) The golden rule of accumulation: a fable for growthmen. Am Econ Rev 51:638–643
Piketty T (2014) Capital in the 21st century. Belknap Press of Harvard University Press, Cambridge
Rivera-Batiz L, Romer P (1991) Economic integration and endogenous growth. Q J Econ 106:531–555
Romer P (1987) Growth based on increasing returns due to specialization. Am Econ Rev 77:56–62
Romer P (1990) Endogenous technological change. J Polit Econ 98:71–102
Solow RM (1957) Technical change and the aggregate production function. Rev Econ Stat 39(3):312–320 (The MIT Press)
von Weizsäcker C (1962) Wachstum, Zins und optimale Investitionsquote. Mohr, Tübingen
Welfens PJJ (2011) Innovations in macroeconomics, 3rd revised and enlarged edition. Springer, Heidelberg
Welfens PJJ (2013) Social security and economic globalization. Springer, Heidelberg
Welfens PJJ (2014) Issues of modern macroeconomics: new post-crisis perspectives on the world economy. IEEP 11(4):481–527
Welfens PJJ, Irawan T (2014a) Transatlantic trade and investment partnership: sectoral and macroeconomic perspectives for Germany, the EU and the US. IEEP 11(3):293–328
Welfens PJJ, Irawan T (2014b) European product innovation dynamics and US economic impact: theory and empirical analysis, EIIW working paper No. 207, EIIW at the University of Wuppertal
Acknowledgments
I am grateful for the excellent research support of Tony Irawan, Vladimir Udalov, Samir Kadiric, David Hanrahan and Jens Perret, EIIW; I also appreciate discussion with Robert Lawrence, Kennedy School/Harvard University, particularly on the links between trade and innovation dynamics and the perspectives for TTIP. Suggestions by Holger Wolf, Georgetown University, are also appreciated; I have benefited from a previous research stay at Sciences Po, Paris, France. The usual disclaimer applies.
Author information
Authors and Affiliations
Corresponding author
Appendices
Appendix 1: Perspectives on meeting the golden rule in selected countries (difference refers to real GDP growth minus real interest rate)
“Real interest rate is the lending interest rate adjusted for inflation as measured by the GDP deflator. The terms and conditions attached to lending rates differ by country, however, limiting their comparability.”
Source: World Bank
Appendix 2
Appendix 3: Info on tax revenue
Appendix 4: The link between TFP growth and the R&D-GDP
Table 10 presents a panel data analysis on the impact of R&D-GDP ratio on the growth rate of total factor productivity of the European countries. Due to missing values on the database, the regression covers 21 European countries during the period 2003–2012. All the data is collected from Eurostats and AMECO Database.
Rights and permissions
About this article
Cite this article
Welfens, P.J.J. Innovation, inequality and a golden rule for growth in an economy with Cobb-Douglas function and an R&D sector. Int Econ Econ Policy 12, 469–496 (2015). https://doi.org/10.1007/s10368-015-0314-2
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10368-015-0314-2