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A stylized version of the Aghion-Howitt growth model

Author

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  • Delano S. Villanueva

Abstract

This short note introduces a compact, self-contained 3 × 3 reduced version of the Aghion-Howitt (AH, Schumpeterian, or creative destruction) model. This stylized reduction aims to capture the three core mechanisms in the AH intuition: (i) innovation (endogenous technological progress), (ii) capital accumulation or production, and (iii) allocation of labor to research & development (R&D) which responds to relative returns. This piece writes the three-equation system, explains every symbol, and outlines the steady-state or balanced-growth conditions as well as the Jacobian for local stability analysis. Developing and emerging economies such as the Philippines, where the R&D sector is actively growing, can benefit from understanding the AH model.

Suggested Citation

  • Delano S. Villanueva, 2025. "A stylized version of the Aghion-Howitt growth model," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 62(2), pages 125-129, December.
    • Handle: RePEc:phs:prejrn:v:62:y:2025:i:2:p:125-129
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    File URL: https://pre.econ.upd.edu.ph/index.php/pre/article/view/1078/1020
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    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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