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This paper investigates the relevance of government purchasing behavior for innovation based economic growth. The authors construct a parsimonious Schumpeterian growth model in which demand from the public sphere can effectively alter the economy's rate of technological change. They incorporate results of various empirical studies arguing that public sector demand acts as incentive for private innovation activities. In contrast to the standard Schumpeterian growth framework, they account for industry heterogeneity in terms of innovation potential. This extension allows bringing government demand policy within the realm of the growth policy debate.
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