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Should the Government Subsidize Innovation or Automation?

Author

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  • Chu, Angus C.
  • Cozzi, Guido
  • Furukawa, Yuichi
  • Liao, Chih-Hsing

Abstract

This study introduces automation into a Schumpeterian model to explore the different effects of R&D and automation subsidies. R&D subsidy increases innovation and decreases the share of automated industries with an overall inverted-U effect on economic growth. Automation subsidy decreases innovation and increases the share of automated industries also with an inverted-U effect on growth. Calibrating the model to US data, we find that the current level of R&D (automation) subsidy is above (below) the growth-maximizing level. Simulating transition dynamics, we find that changing R&D (automation) subsidy to its growth-maximizing level causes a welfare gain of 3.8% increase in consumption.

Suggested Citation

  • Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2018. "Should the Government Subsidize Innovation or Automation?," MPRA Paper 88276, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88276
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    Cited by:

    1. YANO Makoto & FURUKAWA Yuichi, 2019. "Economic Black Holes and Labor Singularities in the Presence of Self-replicating Artificial Intelligence," Discussion papers 19062, Research Institute of Economy, Trade and Industry (RIETI).
    2. Kohei Okada, 2020. "Dynamic Analysis of Education, Automation, and Economic Growth," Discussion Papers in Economics and Business 20-09, Osaka University, Graduate School of Economics.
    3. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi & Liao, Chih-Hsing, 2019. "Effects of Minimum Wage on Automation and Innovation in a Schumpeterian Economy," MPRA Paper 95824, University Library of Munich, Germany.

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    More about this item

    Keywords

    automation; innovation; economic growth;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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