Schumpeterian models at work: Applications to trade and welfare, innovation policy, and wage inequality

This dissertation explores some applications of the second generation neo-Schumpeterian growth models. This first chapter introduces and briefly discusses the main themes of the work. In the second chapter I present a critical survey of the literature on increasing in wage inequality in the U.S. in the last three decades. The third chapter suggests an original link between wage inequality and technical change focusing on the post-Cold War U.S. technology policy push. Since the early 1980's, U.S. technology policy began targeting commercial innovations more directly. I focus on two specific policies: the introduction of the R&D Tax Credit in 1981, and the shift in the composition of public spending towards high-tech goods. I build a Schumpeterian growth model with heterogeneous firms and endogenous supply of skills, and show that innovation subsidies and the shift in the structure of public spending increase the wage of skilled workers and, at the same time, stimulates human capital accumulation. A calibrated version of the model suggests that government policy explains up to 33 percent of the observed increase in the skill premium.;The forth chapter studies the links between international technological competition and optimal strategic R&D subsidies. In a Schumpeterian growth framework I show that increases in foreign competition trigger a business-stealing effect that reduces domestic income and welfare and raises the optimal domestic R&D subsidy. Second, I perform a quantitative exercise: I build an empirical index of international technological competition and find that in OECD countries the share of competitive sectors increased from 35 percent in 1973 to 70 percent in 1989. Then, I use this evidence to evaluate the optimality of the U.S. R&D subsidy response to the observed increase in competition in that period. I find a welfare loss of the observed policy, relative to the optimal, ranging between 0.2 and 0.5 percentage points of quality-adjusted per-capita consumption. Finally, I extend the model to account for strategic policy complementarities and show that the positive effect of competition on the optimal subsidy is robust to this set up. In addition, I find that competition affects the incentives to cooperate in R&D policy.