Innovative vs. imitative R&D and economic growth

This paper develops a multi-sector dynamic general equilibrium growth model , in which innovation improves product quality and imitation expands produc t variety and both innovation and imitation can occur simultaneously in the same sector. Within the analytical framework so developed, we show that (i ) subsidizing innovation and taxing imitation are not necessarily equivalen t in terms of their effects on imitation; (ii) an innovation subsidy always speeds up economic growth while an imitation subsidy always does the oppos ite; and (iii) the welfare effects of both innovation and imitation subsidi es are ambiguous. (C) 2001. Elsevier Science B.V. All rights reserved.