Should the government subsidize innovation or automation?

Abstract

This study introduces automation into a Schumpeterian growth model to explore the effects of R&D and automation subsidies. R&D subsidy increases innovation and growth but decreases the share of automated industries and the degree of capital intensity in the aggregate production function. Automation subsidy has the opposite effects on these macroeconomic variables. Calibrating the model to US data, we find that raising R&D subsidy increases the welfare of high-skill workers but decreases the welfare of low-skill workers and capital owners, whereas increasing automation subsidy increases the welfare of high-skill workers and capital owners but decreases the welfare of low-skill workers. Therefore, whether the government should subsidize innovation or automation depends on how it evaluates the welfare gains and losses of different agents in the economy.

Fragile robots, economic growth and convergence

“…Second, it would be also straightforward to introduce idle (automation) capital in the Lankisch et al (2019) framework in order to investigate the role capital utilization might play explaining the empirical evolution of the skill premium. Third, it would be interesting to include capital utilization into a Schumpeterian growth context in order to explore the effects of an automation subsidy policy versus an R&D subsidy on welfare as done by Chu et al (2022). Note: Numbers show relative differences in steady state equilibrium levels.…”

Love of novelty: a source of innovation-based growth… or underdevelopment traps?

“…Thus, if one needs to examine the role of goods substitutability, it is useful to think of the case without substitutability (i.e., the case of σ = 1). 15 See, for example, Li (2001), Goh and Olivier (2002), Iwaisako and Futagami (2013), and Chu et al ( , 2022 for growththeoretic analyses. The breadth of a patent here is identified with "the flow rate of profit available to the patentee" and often interpreted as "the ability of the patentee to raise price" (Gilbert and Shapiro (1990)).…”