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Variety Expansion Redux: A Cross-Country Estimation of the Spillover Effects of Innovation and Imitation

Research output: Working paper

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Abstract

The complex interactions between imitation and innovation are frequently
examined in endogenous growth models: imitation serves as a stepping stone to
innovation; innovation exhibits spillover to imitation; for both, the accumulative
stock provides a standing-on-shoulders e¤ect to further growth. However, empirical estimation of these concepts in true Romerian product variety interpretation is scarce. This is due to variety expansion often being treated only as imitative activities in the relatively popular Schumpeterian interpretation to innovation. Using an overlapping generations framework that models innovation and imitation as semi-symmetric ideas production functions, this paper estimates these spillover e¤ects using cross-country data by treating each 4-digit ISIC industries as a separate industrial variety. We find robust and significant estimates for all three spillover effects, with both imitation and innovation being complementary to each other. In addition, the growth regressions also reaffirm the significance of product variety expansion as a source of innovation-driven growth.