Cycles + Semi-endogenous Growth = Endogenous Growth
One-sector R&D-based models predict scale effects, which is empirically inconsistent. This is due to the "knife-edge" assumption that new ideas created are linear in the stock of knowledge. If this assumption is dropped to make a one-sector R&D-based model consistent with data, growth becomes semi-endogenous in the sense that public policy and consumer preferences do not affect growth in the long run, though technical progress is endogenous. This paper challenges this Consensus View. Using an otherwise very standard one-sector R&D-based model, we emonstrate the possibility of endogenous cycles where public policy and consumer preferences affect productivity growth. This result is obtained when the knife-edge assumption is violated.
|Date of creation:||04 Jun 2003|
|Date of revision:|
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