Paper #933

Title:

Competition, innovation and growth with limited commitment

Authors:

Ramon Marimon and Vincenzo Quadrini

Date:

December 2005

Abstract:

We study how barriers to business start-up affect the investment in knowledge capital when contracts are not enforceable. Barriers to business start-up lower the competition for knowledge capital and, in absence of commitment, reduce the incentive to accumulate knowledge. As a result, countries with large barriers experience lower income and growth. Our results are consistent with cross-country evidence showing that the cost of business start-up is negatively correlated with the level and growth of income.

Keywords:

Innovation, Knowledge Capital, Enforcement, Growth, Competition, Commitment, Recursive Contracts, Mobility

JEL codes:

O30, O31, O40, J24, E22, D23

Area of Research:

Macroeconomics and International Economics

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