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A Model of Growth through Creative Destruction

  • Aghion, Philippe
  • Howitt, Peter

A model of endogenous growth is developed in which growth is driven by vertical innovations that involve creative destruction. Equilibrium is determined by a forward-looking difference equation, according to which the amount of research in any period depends negatively upon the amount expected next period. The paper analyzes positive and normative properties of stationary equilibria, and shows conditions for the existence of cyclical equilibria and no-growth traps. The growth rate may be more or less than optimal because a business-stealing effect counteracts the usual spillover and appropriability effects. In addition, innovations tend to be too small. Copyright 1992 by The Econometric Society.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 60 (1992)
Issue (Month): 2 (March)
Pages: 323-51

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Handle: RePEc:ecm:emetrp:v:60:y:1992:i:2:p:323-51
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  19. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
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