Additional Endogenous Growth Models

In this chapter we review some additional mechanisms by which endogenous growth arises. We start with an economy without capital accumulation in which technological progress shows up in the form of the number of varieties of producer products, possibly differing in quality [31, 33, 76, 78, 89].1 Technological innovation in these models may lead to either an increase in their number, or in their quality, so the innovation process is key in this economy. These models can be seen to be equivalent to the AK model for an appropriate parameter choice. In particular, except in specific versions of these models there is no transition, per capita variables growing at a constant rate at all points in time after any structural shock or policy intervention. After that, we present a model of technological diffusion between two countries, one being a leader in innovation, as in the model with varieties of producer products, the second one being a follower, that adopts the innovations developed in the leading country. The economy of the follower country displays a non-trivial transition to steady-state. We then present a model economy with creative destruction à la Schumpeter [82] in which growth is driven endogenously by attempts to improve the quality of existing goods through innovation. This model incorporates accumulation of physical capital and displays a nontrivial transition to steady-state. We close with an important model, that of a two-sector economy in which human and physical capital accumulate over time, and where time devoted to education plays an important role, so that the split of time among that devoted to producing the final good, to education (i.e., to human capital accumulation) and leisure is a crucial decision. This model again exhibits a nontrivial transition, and it is an appropriate framework to address interesting questions regarding fiscal policy. Furthermore, this model can also give raise of indeterminacy of equilibrium, which we discuss in a separate section.