Essays on Economic Growth, Population Growth, and Patent Policy

Abstract

Economic growth is defined as an increase in the production of goods and services over a specific period of time and is calculated as the percentage change of real gross domestic product (GDP) from one year to another. Sustained economic growth rate helps a country to raise living standards. Economies with poor growth usually suffer from issues like higher rates of poverty, lower life expectancy, and higher infant mortality rates. There are three factors that influence economic growth - physical capital growth, human capital growth, and technological progress. In the early growth theories, the source of technological change was not explained and instead assumed it as a result of chance.

The modern growth theory overcomes this shortcoming. They believe that the technological advances were not by chance but driven by the firms in hope of profit. Technological advancement leads to accumulation of knowledge capital. As knowledge is nonrival and nonexcludable it is subject to increasing returns. Innovation leads to the introduction of - new and better - techniques and products. Sustained innovative activity increases consumption and production that in turn leads to a higher standard of living and economic growth. The two dimensions of innovation considered in the literature were horizontal (variety expansion) and vertical (quality improvements).

The first generation models show a positive relationship between economic growth and population size. This implies that higher population size increases the number of researchers which in turn leads to an increase in the growth rate. But this result was not supported empirically. To eliminate this prediction the second and third generation models emerge. These papers show a positive relationship between economic growth and population growth ("weak-scale effect"). However, even this relationship was not supported empirically.

The recent empirical literature established a non-monotonic relationship between economic growth and population growth. Recent theoretical papers proposed several modifications to align the theory with the empirical finding. A common element of modification is the introduction of human capital as a productive input in the R&D sector. This induces substitution between the quantity and quality of workers, which increases effective labor supply and enhances economic growth.

The first two chapters of this dissertation extend the latter line of research in two different ways. In the first chapter, we modify the canonical third generation R&D based model to incorporate non-linear - human capital spillover and dynastic altruism - subject to congestion in fertility rate. For strong spillover and congestion effect, economic growth first increases with population growth and then slows down.

The second chapter emphasizes the role of the assumed demographic structure - that incorporates life-cycle and bequest saving motives - is considered. The sign of the weak scale effect is positive only if parental bequest saving motive is strong.

The third chapter reveals the implications of the demographic structure for patent policy. There is a large literature on patent policy and economic growth, but it was entirely written for infinitely lived agents. These papers conclude that growth is maximized with complete patent protection. This research shows that finite lifetime has immediate implications for patent policy. We find that both shortening patent length (duration of patent protection) and weakening patent breadth (lowering price of patented machines) are growth enhancing but shortening patent length is more effective in spurring growth. This is because the former decreases investment in old patents.