Imitation as a Stepping Stone to Innovation
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abstract
This product cycle model captures how imitation can serve as a stepping stone enabling firms from Southern countries to undertake innovation. Successful imitation of the state-of-the-art quality level makes inventing an even higher quality level attractive for Southern firms. Subsidizing Southern innovation increases the rate of Southern innovation relative to imitation but also decreases the rate of imitation. Taxing (Southern) imitation or Northern innovation has the same effect, as does decreasing Northern resources. Only increasing Southern resources has the potential to increase the rate of Southern innovation relative to imitation without decreasing the rate of imitation.
