Innovation and labour mobility

The present model introduces labour mobility in an otherwise standard model of innovation and imitation. As in Grossman and Helpman (Innovation and growth in the global economy. MIT Press, Cambridge, 1992) a wide-gap and a narrow gap steady state equilibrium is characterized. It is shown that there can be multiplicity of equilibrium in the wide gap case. Interestingly, free labour mobility causes the growth rate to be identical for both the wide gap and the narrow gap case. A strengthening of intellectual property rights reduces the global growth rate of the economy both in the wide gap and narrow gap equilibrium. In case of the unique narrow gap equilibrium, stronger property rights reduces the rate of imitation unambiguously, but the effect of stronger property rights remains ambiguous in case of wide gap equilibrium. Also subsidy by North to innovation, in a Narrow gap equilibrium, has no effect on the rate of imitation or on the global growth rate.