Discretely innovating: The effect of barriers to entry on innovation and growth

PublishedDecember 2018
PublisherBankwest Curtin Economics Centre
ISBN978-1-925083-94-1
ISSN2202-2791
Number of Pages42
Number18/04

This article considers the effect of a discrete entry barrier (i.e. an integer number of firms) in an endogenous growth model to draw conclusions about the relationship between contestability, innovation and growth. Sector specific workers provide a tool for calibrating numerical examples. Sectors with lower entrepreneurial contestability have lower innovation and sectors characterized by Cournot oligopoly have lower innovation than sectors characterized by Bertrand. Wage inequality varies depending on the extent that the entry barrier is binding upon a marginal entrant. The model offers policy implications to support entrepreneurial entry, particularly in relatively small or isolated regional economies.