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Endogenous Growth and Entropy

Author

Listed:
  • Tiago Neves Sequeira

    (Univ. Beira Interior and CEFAGE-UBI)

  • Pedro Mazeda Gil

    (University of Porto, Faculty of Economics, and CEF.UP)

  • Óscar Afonso

    (University of Porto, Faculty of Economics, CEF.UP, and CEFAGE-UBI)

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 using the concept of entropy as a state-dependent complexity effect. This allows us to gradually diminish scale effects as the economy develops along the transitional dynamics, which conciliates evidence on the existence of scale effects in history with evidence of no or reduced scale effects in today’s economies. We show that empirical evidence supports entropy as a “first principle” operator of the complexity effect. The model features endogenous growth, with null or small (positive or negative) scale effects, or stagnation, in the long run. These different long-run possibilities have also policy implications. Then, we show that the model can replicate well the take-off after the industrial revolution and the productivity slowdown in the second half of the XXth century. Future scenarios based on in-sample calibration are discussed, and may help to explain (part of) the growth crises affecting the current generation.

Suggested Citation

  • Tiago Neves Sequeira & Pedro Mazeda Gil & Óscar Afonso, 2018. "Endogenous Growth and Entropy," CeBER Working Papers 2018-05, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2018-05
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    Cited by:

    1. Naudé, Wim, 2019. "The Race against the Robots and the Fallacy of the Giant Cheesecake: Immediate and Imagined Impacts of Artificial Intelligence," IZA Discussion Papers 12218, Institute of Labor Economics (IZA).
    2. Gil, Pedro Mazeda & Iglésias, Gustavo & Guimarães, Luís, 2023. "Endogenous growth and monetary policy: How do interest-rate feedback rules shape nominal and real transitional dynamics?," Journal of International Money and Finance, Elsevier, vol. 138(C).
    3. Tiago Sequeira & Hugo Morão, 2020. "Growth accounting and regressions: New approach and results," International Economics, CEPII research center, issue 162, pages 67-79.
    4. Antonelli, Cristiano & Crespi, Francesco & Quatraro, Francesco, 2022. "Knowledge complexity and the mechanisms of knowledge generation and exploitation: The European evidence," Research Policy, Elsevier, vol. 51(8).
    5. Almeida, Derick & Naudé, Wim & Sequeira, Tiago Neves, 2024. "Artificial Intelligence and the Discovery of New Ideas: Is an Economic Growth Explosion Imminent?," IZA Discussion Papers 16766, Institute of Labor Economics (IZA).
    6. Orlando Gomes, 2021. "Growth theory under heterogeneous heuristic behavior," Journal of Evolutionary Economics, Springer, vol. 31(2), pages 533-571, April.
    7. Wim Naudé, 2022. "From the entrepreneurial to the ossified economy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 46(1), pages 105-131.
    8. repec:rim:rimwps:20-20 is not listed on IDEAS
    9. 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).
    10. Peralta, Catarina & Gil, Pedro Mazeda, 2025. "Automation, education, and population: Dynamic effects in an OLG growth and fertility model," Journal of Economic Behavior & Organization, Elsevier, vol. 234(C).
    11. Óscar Afonso, 2022. "Growth and wage effects of the monetary policy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4058-4084, October.
    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).
    13. Oscar Afonso & Tiago Sequeira & Derick Almeida, 2023. "Technological knowledge and wages: from skill premium to wage polarization," Journal of Economics, Springer, vol. 140(2), pages 93-119, October.
    14. Derick Almeida & Tiago Neves Sequeira, 2024. "Robots at work: New evidence with recent data," Manchester School, University of Manchester, vol. 92(6), pages 700-722, December.
    15. Bucci, Alberto & Carbonari, Lorenzo & Gil, Pedro Mazeda & Trovato, Giovanni, 2021. "Economic growth and innovation complexity: An empirical estimation of a Hidden Markov Model," Economic Modelling, Elsevier, vol. 98(C), pages 86-99.
    16. Barbara Annicchiarico & Valentina Antonaroli & Alessandra Pelloni, 2022. "Optimal factor taxation in a scale free model of vertical innovation," Economic Inquiry, Western Economic Association International, vol. 60(2), pages 794-830, April.
    17. Óscar Afonso & Tiago Neves Sequeira & Marcelo Santos & Pedro Cunha Neves, 2023. "Global Firms, (de)unionization and Wage Inequality," Open Economies Review, Springer, vol. 34(5), pages 979-1013, November.

    More about this item

    Keywords

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    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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