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Inflation and Innovation in a Schumpeterian Economy with North–South Technology Transfer
Author(s) -
CHU ANGUS C.,
COZZI GUIDO,
FURUKAWA YUICHI,
LIAO CHIHHSING
Publication year - 2018
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12514
Subject(s) - inflation (cosmology) , economics , wage , technology transfer , output gap , cash , china , transfer (computing) , quality (philosophy) , monetary economics , economy , monetary policy , macroeconomics , labour economics , geography , international trade , philosophy , physics , archaeology , epistemology , computer science , parallel computing , theoretical physics
This study analyzes how inflation affects innovation and international technology transfer via cash‐in‐advance constraints on R&D. We consider a North–South quality‐ladder model that features innovative Northern R&D and adaptive Southern R&D. We find that higher Southern inflation causes a permanent decrease in technology transfer, a permanent increase in the North–South wage gap, and a temporary decrease in the Northern innovation rate. Higher Northern inflation causes a temporary decrease in the Northern innovation rate, a permanent decrease in the North–South wage gap, and ambiguous effects on technology transfer. Finally, we calibrate the model to China–U.S. data to perform a quantitative analysis.