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Innovation and imitation in a product-cycle model with FDI and cash-in-advance constraints

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  • Chen, Hung-Ju

Abstract

This paper analyzes the effects of monetary policy on innovation and imitation in a North-South product-cycle model with foreign direct investment (FDI) and separate cash-in-advance (CIA) constraints on innovative R&D, adaptive R&D and imitative R&D. We find that if the CIA constraint is applied to innovative R&D, then an increase in the Northern nominal interest will raise the rate of Northern innovation and the extent of FDI while reducing the rate of Southern imitation and the North-South wage gap. Regarding the effects of the Southern monetary policy, the object that is liquidity-constrained plays a significant role. If adaptive (imitative) R&D is subject to the CIA constraint, then an increase in the Southern nominal interest rate will raise (reduce) the rate of Northern innovation and the extent of FDI while reducing (raising) the rate of Southern imitation. We also examine the responses of social welfare for Northern and Southern consumers to monetary policy.

Suggested Citation

  • Chen, Hung-Ju, 2015. "Innovation and imitation in a product-cycle model with FDI and cash-in-advance constraints," MPRA Paper 65744, University Library of Munich, Germany, revised Apr 2015.
    • Handle: RePEc:pra:mprapa:65744
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    Cited by:

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    2. Chu, Angus C. & Ning, Lei & Zhu, Dongming, 2019. "Human Capital And Innovation In A Monetary Schumpeterian Growth Model," Macroeconomic Dynamics, Cambridge University Press, vol. 23(5), pages 1875-1894, July.
    3. He, Qichun, 2018. "Inflation and Fertility in a Schumpeterian Growth Model: Theory and Evidence," MPRA Paper 85074, University Library of Munich, Germany.
    4. Ho, Florence Ut Meng, 2023. "Tariffs and Innovation in a Schumpeterian Economy with North-South Technology Transfer," MPRA Paper 118068, University Library of Munich, Germany.
    5. He, Qichun, 2018. "Inflation and fertility in a Schumpeterian growth model: Theory and evidence1," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 113-126.
    6. Daiki Maeda & Yuki Saito, 2020. "Effects of Monetary Policy in a Model with Cash-in-Advance Constraints on R&D and Capital Accumulation," ISER Discussion Paper 1076, Institute of Social and Economic Research, Osaka University.

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    More about this item

    Keywords

    CIA constraint; FDI; Imitation; Monetary policy; R&D.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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