Inflation and Innovation in a Schumpeterian Economy with North–South Technology Transfer

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

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)683-719
Number of pages37
JournalJournal of Money, Credit and Banking
Volume51
Issue number2-3
DOIs
StatePublished - 1 Mar 2019

Keywords

  • E41
  • economic growth
  • F43
  • FDI
  • inflation
  • North–South product cycles
  • O30
  • O40
  • R&D

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