Inflation, endogenous quality increment, and economic growth

Abstract

This study explores the effects of monetary policy in a Schumpeterian growth model with endogenous quality increment and distinct cash-in-advance (CIA) constraints on consumption, manufacturing and R&D investment. Our results are summarized as follows. When the CIA constraint is solely on consumption expenditure, an increase in the nominal interest rate may stifle economic growth by lowering the arrival rate of innovation and stimulate it at the same time by raising the size of quality increment. An additional CIA constraint on manufacturing weakens the growth-retarding effect and enhances the growth-promoting effect, whereas an additional CIA constraint on R&D investment strengthens only the negative growth effect. The quantitative analysis finds that the relationship between inflation and growth can be either monotonically decreasing or hump-shaped, but the welfare effect of inflation is always negative.

Estimating relationships among foreign direct investment, governance quality, and economic growth in developing countries using the threshold auto‐regressive model

“…In fact, an increase of 1% of INF decreases economic growth by 1.8%. This result is similar to the results presented by Hu et al (2022), Mandeya and Ho (2022), and Sequeira (2021), who found that inflation negatively harms economic growth in both the short and long run. On the other hand, adverse economic effects dominate if inflation rises faster.…”

Export product quality and inclusivity in developing countries

“…A high inflation rate reflects an economic malaise. Its adverse effects on economic growth (for example, through lower investment and efficiency) have been documented in the literature (e.g., Christiansen et al, 2013;Hu et al, 2021;Levine and Renelt, 1992;Levine and Zervos, 1993;Slemrod, 1995). We expect that a stable macroeconomic environment (proxied by a lower inflation rate) is associated with a higher per capita income.…”

Tariffs and Innovation in a Schumpeterian Economy with North-South Technology Transfer

“…In this subsection, we alter the value of the innovation arrival rate to perform the robustness checks by considering two alternative values of I N ∈ {0.08, 0.15} accordingly to Hu et al (2021) and Caballero and Jaffe (1993), respectively. Keeping other parameters unchanged, we redo the numerical analysis by increasing the τ S and τ N respectively.…”