Abstract: Innovation is the fundamental cause for China’s transformation from the factor-based growth to the innovation-based growth, and R&D investment is the precondition for innovation. Government R&D investment plays an important role in both basic research and entrepreneur innovation. Government could offer R&D subsidy to firms, and provide R&D directly too. However, the effects of R&D policy on growth and social welfare are quite different. This paper explores the impact of government R&D policy in an endogenous growth model with horizontal innovation. It is found that, government R&D provision is good for growth, and government R&D subsidy is good for social welfare. The policy implication of this paper is that the government should increase the R&D subsidy for entrepreneur innovation.
Keywords: R&D Subsidy, R&D Provision, Economic Growth, Social Welfare
source:Finance & Trade Economics ,No9,2013