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Quality Ladders and Product Cycles

Quality Ladders and Product Cycles Abstract We develop a two-country model of endogenous innovation and imitation in order to study the interactions between these two processes. Firms in the North race to bring out the next generation of a set of technology-intensive products. Each product potentially can be improved a countably infinite number of times, but quality improvements require the investment of resources and entail uncertain prospects of success. In the South entrepreneurs invest resources in order to learn the production processes that have been developed in the North. All R&D investment decisions are made by forward-looking, profit-maximizing entrepreneurs. The steady-state equilibrium is characterized by constant aggregate rates of innovation and imitation. We study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning. * Part of the work for this paper was completed while both authors were visiting the Institute for Advanced Studies at Hebrew University, and while Grossman was at the World Bank and Helpman was at the International Monetary Fund. We thank these organizations plus the National Science Foundation and the Bank of Sweden Tercentenary Foundation for financial support. We are grateful to Robert Lucas for his helpful comments. This content is only available as a PDF. © 1991 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Quarterly Journal of Economics Oxford University Press

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References (15)

Publisher
Oxford University Press
Copyright
© 1991 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
ISSN
0033-5533
eISSN
1531-4650
DOI
10.2307/2937947
Publisher site
See Article on Publisher Site

Abstract

Abstract We develop a two-country model of endogenous innovation and imitation in order to study the interactions between these two processes. Firms in the North race to bring out the next generation of a set of technology-intensive products. Each product potentially can be improved a countably infinite number of times, but quality improvements require the investment of resources and entail uncertain prospects of success. In the South entrepreneurs invest resources in order to learn the production processes that have been developed in the North. All R&D investment decisions are made by forward-looking, profit-maximizing entrepreneurs. The steady-state equilibrium is characterized by constant aggregate rates of innovation and imitation. We study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning. * Part of the work for this paper was completed while both authors were visiting the Institute for Advanced Studies at Hebrew University, and while Grossman was at the World Bank and Helpman was at the International Monetary Fund. We thank these organizations plus the National Science Foundation and the Bank of Sweden Tercentenary Foundation for financial support. We are grateful to Robert Lucas for his helpful comments. This content is only available as a PDF. © 1991 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Journal

The Quarterly Journal of EconomicsOxford University Press

Published: May 1, 1991

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