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Growth and optimal policies in an R&D‐growth model with imperfect international capital mobility

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  • Mei‐ying Hu
  • Ping‐ho Chen
  • Hsun Chu
  • Ching‐chong Lai

Abstract

In this paper, we examine the effects of international capital mobility on innovation, growth, and optimal growth policies in a small open economy with R&D‐driven growth. Households can borrow funds from an imperfect international capital market to finance their investment in R&D firms. We show that the economy can reach a higher growth rate if international capital is more mobile. This result is consistent with recent empirical findings. Moreover, we show that the common growth‐enhancing policies, such as patent protection and the R&D subsidies, have an additional negative welfare effect when households can access the international capital market. Accordingly, the optimal patent protection and R&D subsidy should be smaller when the degree of international capital mobility is higher.

Suggested Citation

  • Mei‐ying Hu & Ping‐ho Chen & Hsun Chu & Ching‐chong Lai, 2023. "Growth and optimal policies in an R&D‐growth model with imperfect international capital mobility," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(4), pages 840-866, August.
    • Handle: RePEc:bla:jpbect:v:25:y:2023:i:4:p:840-866
    DOI: 10.1111/jpet.12635
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