• Journal of Korea Technology Innovation Society
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• v.10 no.1
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• pp.47-72
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• 2007

Ideas do not become exhausted, and there are no diminishing returns in the creation of knowledge. Nonetheless, growth ultimately ceases in this simplest model of endogeneous innovation. The reasons are similar to those that are discussed in the context of the neoclassical model of capital accumulation. Even if the resource cost of creating new goods does not rise, the economic return to invention may decline as the number of available products increases. When the rate of return to R&D falls to the level of the discount rate, private agents cease to be willing to defer consumption in order to invest in product development. But, if we treat knowledge capital as a public capital considering of its non-appropriable benefits, economic growth can be sustained in the economy. Romer(1986) has pointed out that growth might be sustainable if the accumulation of knowledge is not subject to long-run diminishing returns. Actually Romer assumed diminishing returns in the production of private knowledge from available resources, but increasing returns in the production of output from labor and total (public and private) knowledge. His condition for the sustainability of long-run growth amounts to an assumption that the diminishing returns in the former activity do not outweigh the increasing returns in the latter. The Johansen(1988) cointegration test method is used for finding long-run equilibrium relationship between R&D input and the product innovation. Test results indicate the existence of cointegrating equation between each pair of regression variables including dependent variable in the knowledge production function. And, the signs of cointegrating vectors are well accord to the prediction of sustainable growth. In the empirical analysis, from all cases of the form for the knowledge production function, we could not reject the null hypothesis that R&D spillover effect is significant($H_{0}:\;{\gamma}=1$). In summary, we showed that considering goodness of fit of regression model, we can see that the empirical evidence is strongly in favor of the character of knowledge as the public knowledge capital. So, we can expect that by product innovation, economic growth can be sustained in the Korean economy.