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Wants and Past Knowledge: Growth Cycles with Emerging Industries

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  • Ryo Horii

    (Osaka University)

Abstract

This paper develops a theory of endogenous growth cycles focusing on the interaction between consumers' desire to satisfy an indefinite range of wants and firms' incentive to utilize knowledge from past production experiences. We show that firms endogenously form a number of distinguishable industries as accumulated knowledge induces them to agglomerate in the technology space. Knowledge accumulation in existing industries reduces production costs, but, as the diminishing returns from learning sets in, some firms start to adopt previously unexplored technologies so that their new goods fit consumers' unsatisfied wants and attract large demand. Thus, sporadic emergence of new industries generates growth cycles, where both the timing and the new technology to be adopted are endogenously determined. New industries based on new technology reduce the rate of per capita GDP growth in the initial phase, but nonetheless are indispensable for sustained economic growth in the long run.

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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0504007.

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Length: 32 pages
Date of creation: 13 Apr 2005
Date of revision: 10 Jan 2006
Handle: RePEc:wpa:wuwpdc:0504007

Note: Type of Document - pdf; pages: 32
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Web page: http://128.118.178.162

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Keywords: endogenous growth; technology choice; wants; knowledge; cycles.;

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Cited by:
  1. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.

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