Centralized Innovation Policy In An Agglomeration And Growth Model: A Welfare Analysis

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Innovation policies are strategic tools for reinforcing long-term economic growth. If the literature highlights the need for coordination among national R&D policies, the need for transnational policies appears to be less clear. Using a model ? la Martin and Ottaviano (1999), the authors conduct a welfare analysis in order to judge the effect of a centralized R&D subsidy policy. If theoretical results suggest that this policy can improve efficiency and equity, the welfare analysis shows that when there are few knowledge spillovers between countries, and then the policy leads to a conflict of interest. In the case of strong international knowledge spillovers however, the conflict of interest disappears suggesting that innovation policies should first focus on the development of knowledge flows between countries.