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Factor Saving Innovation

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  • Boldrin, Michele
  • Levine, David

Abstract

It has been argued that concave models exhibit less ‘endogeneity of growth’ than models with increasing returns to scale. Here we study a simple model of factor saving technological improvement in a concave framework. Capital can be used either to reproduce itself, or, at some additional cost, to produce a higher quality of capital, which requires less labour input. If better quality capital can be produced quickly, we get a model of exogenous balanced growth as a special case of ours. If, however, better quality capital can be produced slowly, we get a model of “endogenous growth” in which the growth rate of the economy and the rate of adoption of new technologies is determined by preferences, technology and initial conditions. Moreover, in the latter case, the process of growth is necessarily uneven, exhibiting a natural cycle with alternating periods of high and slow growth. Growth paths and technological innovations also exhibit dependence upon initial conditions. The model provides a step toward a theory of endogenous innovation under conditions of perfect competition.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3262.

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Date of creation: Mar 2002
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Handle: RePEc:cpr:ceprdp:3262

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Keywords: aggregate productivity; choices and consequences; innovation and invention; measurement of economic growth; one; two and multisector growth models; processes and incentives; technological change;

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  1. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
  2. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  3. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  4. Michele Boldrin & David K. Levine, 2002. "Perfectly competitive innovation," Staff Report 303, Federal Reserve Bank of Minneapolis.
  5. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter.
  6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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