Leisure and innovation in horizontal R&D-based growth

Abstract

In this paper we try to investigate, under weak spillover effects in the R&D sector, whether leisure time can act as an externality that promotes innovation. More specifically, we set up and test a horizontal R&D-based growth model with endogenous labor supply where leisure time may enhance inventors’ productivity and therefore have (under specific conditions) positive long run effects on the accumulation of new disembodied knowledge. Our main result in the theoretical model which is confirmed empirically is that leisure time can be beneficial for innovation in situations where there are weak spillovers arising from past ideas in the invention of new ones.