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Endogenous growth and entropy

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  • Sequeira, Tiago Neves
  • Gil, Pedro Mazeda
  • Afonso, Oscar

Abstract

This paper offers novel insights regarding the role of complexity in both the transitional and the long-run dynamics of the economy. We devise an endogenous growth model that encompasses long-run economic change building on the concept of entropy as a time-varying state-dependent complexity effect. We show that the empirical evidence supports entropy as an ’operator’ of the complexity effect. It also suggests that part of the modern innovations have a stabilizing role in the complexity of the economies, as the ‘operator’ levels off despite the continuous increase in the measure of technological varieties. The model features endogenous growth, with null or small scale effects, or stagnation, in the long run. The model can replicate well the take-off after the industrial revolution and the productivity slowdown in the second half of the XXth century. Long-run scenarios based on in-sample calibration are discussed, and may help explain (part of) the growth crises affecting the current generation.

Suggested Citation

  • Sequeira, Tiago Neves & Gil, Pedro Mazeda & Afonso, Oscar, 2018. "Endogenous growth and entropy," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 100-120.
    • Handle: RePEc:eee:jeborg:v:154:y:2018:i:c:p:100-120
    DOI: 10.1016/j.jebo.2018.07.019
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    10. Naudé, Wim, 2020. "From the Entrepreneurial to the Ossified Economy: Evidence, Explanations and a New Perspective," GLO Discussion Paper Series 539, Global Labor Organization (GLO).
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    12. Naudé, Wim, 2019. "The decline in entrepreneurship in the West: Is complexity ossifying the economy?," MERIT Working Papers 2019-030, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
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    More about this item

    Keywords

    Endogenous growth; Complexity effects; Entropy; Knowledge production function; R&D;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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