Abstract: We develop a growth model capturing an important aspect of the real world: the struggle to survive in the research and development (R&D) sector in the form of endogenous intertemporal investments by R&D …rms to prevent product obsolescence. The core …nding is that if legal patent protection is too strong, a higher R&D subsidy rate delivers insu¢ cient investments to survive in the R&D sector, depressing innovation and growth in the long run. Quantitative analysis indicates that, in countries with a high R&D subsidy rate, the current real-world patent protection may be high enough to have a negative e¤ect on R&D subsidies because of the reduced number of R&D …rms.

JEL classi…cation: O31, O34, O41
Keywords: Survival, subsidy, patent breadth, R&D-based endogenous growth