We develop a model of growth driven by successive improvements in `General Purpose Technologies' (GPTs), such as the steam engine, electricity, or micro-electronics. Each new generation of GPTs prompts investments in complementary inputs and impacts the economy after enough such compatible inputs become available. The long-run dynamics take the form of recurrent cycles: during the first phase of each cycle output and productivity grow slowly or even decline, and it is only in the second phase that growth starts in earnest. The historical record of productivity growth associated with electrification, and perhaps also of computerization lately, may offer supportive evidence for this pattern. In lieu of analytical comparative dynamics, we conduct simulations of the model over a wide range of parameters, and analyse the results statistically. We extend the model to allow for skilled and unskilled labour, and explore the implications for the behaviour over time of their relative wages. We also explore diffusion in the context of a multi-sector economy.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1080.
Find related papers by JEL classification: E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles O3 - Economic Development, Technological Change, and Growth - - Technological Change O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
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