A patentability requirement and industries targeted by R&D

In this paper, we introduce into a Schumpeterian growth model an inventive step: a minimum innovation size required for patents, which is a patentability requirement. We show that each R&D firm targets only the industries that the incumbentfs technology is sufficiently obsolete in order to satisfy an inventive step requirement. This is because a technological gap between innovator and incumbent is larger in the industries that use older technology. Under the circumstance, strengthening an inventive step requirement reduces the industries targeted by R&D, on the other hand, increases R&D investments to the targeted industries. Consequently, we find a nonmonotonic effect of the inventive step on the aggregate flow of innovations.