Internal Increasing Returns to Scale and Economic Growth
AbstractThis study develops a model of endogenous growth based on increasing returns due to firms' technology choices. Particular attention is paid to the implications of these choices, combined with the substitution of capital for labor, on economic growth in a general equilibrium model in which the R&D sector produces machines to be used for the sector producing final goods. We show that incorporating oligopolistic competition in the sector producing finals goods into a general equilibrium model with endogenous technology choice is tractable, and we explore the equilibrium path analytically. The model illustrates a novel manner in which sustained per capita growth of consumption can be achieved -- through continuous adoption of new technologies featuring the substitution between capital and labor. Further insights of the model are that during the growth process, the size of firms producing final goods increases over time, the real interest rate is constant, and the real wage rate increases over time.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12999.
Date of creation: Mar 2007
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Other versions of this item:
- John A. List & Haiwen Zhou, 2007. "Internal Increasing Returns to Scale and Economic Growth," NBER Technical Working Papers 0336, National Bureau of Economic Research, Inc.
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-09 (All new papers)
- NEP-DGE-2007-04-09 (Dynamic General Equilibrium)
- NEP-MAC-2007-04-09 (Macroeconomics)
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