Macrodynamic Modeling of Innovation Equilibria and Traps
Sanchez-Carrera, Edgar J., Ille, Sebastian and Travaglini, Giuseppe (2021) Macrodynamic Modeling of Innovation Equilibria and Traps. The B.E. Journal of Macroeconomics, 21 (2). pp. 659-694. ISSN 2194-6116
Abstract
We study the interplay between the decision of firms to innovate and human capital. Based on a dynamic evolutionary model, we show that in the pres- ence of a high stock of human capital, an advanced economy can remain caught in an “innovation trap”. Following the literature on endogenous growth, R & D investments and human capital are modeled as strategic complements. Skilled workers increase productivity and enjoy a wage premium if they are employed in the R & D sector, while they receive the same wage as unskilled workers if they are employed in the production sector. We model the evolutionary dynamics of the share of innovative firms and human capital to determine the conditions under which an economy converges to a high, low or mixed state of innovation.
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