Competing Engines of Growth: Innovation and Standardization

Innovation and Economic Growth and Intellectual Property

Article Snapshot


Daron Acemoglu, Gino Gancia and Fabrizio Zilibotti


Journal of Economic Theory, Vol. 147, No. 2, pp. 570-601, 2012


This paper examines the joint roles that new technologies, and their standardization, play in economic growth.

Policy Relevance

Factors including the ratio of skilled to unskilled workers; the cost of innovation; and the relative value of new goods shift the effect of intellectual property protection on economic growth.

Main Points

  • This paper develops a theoretical math model of an economy. It specifically focuses on two stages of innovation, each of which causes economic growth.
    • First, “innovation” occurs, when skilled workers create a new good.
    • Later, “standardization” may permit the production of the new good by unskilled workers.
    • This model imitates processes like the adoption of computers, which began as rarified technical tools and eventually were adopted by office workers at every level.
  • Protection of intellectual property rights (IPR) with patents makes innovation more profitable for companies and so leads to more innovation. However, stronger protection of intellectual property makes standardization more costly and so discourages widespread adoption of innovations.
  • The point of developing this model is to determine what level of intellectual property protection results in the greatest rate of economic growth, keeping the tradeoff between innovation and standardization in mind.
    • Growth and consumer well-being are maximized by a greater level of protection of intellectual property when innovation is more costly; when the markup of new products over old is lower; and when there are relatively few skilled workers.
    • Trade and antitrust policy may also affect the level of IPR protection that maximizes economic growth.


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