Economic Growth, Technological Development and the Role of Institutions

Finally I consider the role of incentives in encouraging technological investment by private firms. Standard growth theory suggests that firms that develop new technologies must be protected from imitation by rivals in order to receive monopoly profits to compensate them for their initial investment. But when firms participate in a labour market requiring search and bidding for workers, potential labour market returns to innovation can offset the need for the protection of monopoly power in the product market. This in turn can have important implications for institutions governing intellectual property rights.