Effect of Policy and Entrepreneurship on Innovation and Growth: An Agent-based Simulation Approach

Abstract

Using a model developed by Nelson & Winter (1982) and Zhang (2003) on evolution economics and agent-based simulation(ABS), this paper examines the effect of several factors on high-tech industrial development. Specifically, we focus on the behavior of firms measured by the percentage of R&D resources devoted to innovation or imitation, namely R&D tendency. We show that the variable R&D tendency has a significant effect on the speed of technological level growth. We come to some conclusions as follows: 1) the initial level of technology plays an essential role in the development of new-tech startups; 2) there is an optimal percentage of innovative R&D investment; 3) institutional arrangements will affect the impact of private R&D policy; 4) a good pattern of regional knowledge management is to speed technology diffusion but not keeping technology secret. © 2010, JAPAN SECTION OF THE REGIONAL SCIENCE ASSOCIATION INTERNATIONAL. All rights reserved.