Abstract :
This article presents an endogenous growth model that is designed to be
roughly consistent with the experience of high-tech firms like Intel. In the model,
industry leaders invest in R&D to improve their products, small firms invest in
R&D to become industry leaders, and innovating becomes progressively more
difficult over time. Consistent with the empirical evidence, the model implies that
economic growth is independent of economy size and R&D intensity is independent
of firm size. For plausible parameter values, it is optimal to heavily subsidize
R&D activities.
