Abstract
We use an endogenous growth model to look at policies that could increase the rate of knowledge investment and innovations in the EU. Among the possible options we consider are R&D tax incentives, removal of entry barriers for start-ups, increasing competition in services and high-skilled immigration. All policies discussed in this paper have the potential to increase knowledge investment in the EU. The most promising reform areas seem to be a reduction in financial frictions and increased competition in services.
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Notes
See, for example, the International Monetary Fund's Global Economy Model (Bayoumi et al., 2004) and the European Central Bank's New Area-Wide Model (Coenen et al., 2007).
Variables without time subscript denote steady state values.
These figures are calculated as an average over the period 2004–2006 (Source: T. Meyer (2008)). Notice, however, some countries in the EU, notably those with a high tech specialisation such as the UK, Sweden and Denmark have a share of venture capital investment that exceeds that of the US. However, high tech states in the US such as California have VC investment shares far larger than EU regions.
We define high-skilled workers as that segment of labour force that can potentially be employed in the R&D sector, that is, engineers and natural scientists.
Note that in the tables TFP refers to a constructed measure of technological progress defined as Y/(L Y αK1−α).
Notice, this corresponds to closing the mark-up gap to the US by about 25%.
Alternatively, the risk premium can also be interpreted as the shadow price of the collateral constraint for the firm investing in intangible capital.
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Acknowledgements
We thank participants at the 14th Dubrovnik Economic Conference 2008 and two anonymous referees for useful comments and discussions. The views expressed in this paper are those of the authors and should not be attributed to the European Commission.
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Roeger, W., Varga, J. & Veld, J. Modelling the Lisbon Strategy: Analysing Policies to Promote Knowledge Investment with an Endogenous Growth Model. Comp Econ Stud 51, 520–539 (2009). https://doi.org/10.1057/ces.2009.13
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DOI: https://doi.org/10.1057/ces.2009.13