On Endogenous Growth with Physical Capital, Human Capital and Product Variety

We set up an endogenous growth model with physical capital, human capital and blueprints for intermediate goods. The model can generate steady-state growth or stagnation. Along the adjustment path for a developing economy we can distinguish different stages of development. The first stage is characterized by physical factor accumulation. At the second stage the economy follows a growth path which is mainly characterized by the accumulation of skills. Growth of the fully developed economy is identified by an increasing variety of goods originating from costly R&D efforts. Transition to a higher stage of development is explained endogenously. Thus, the model provides a high degree of generality by encompassing the standard neoclassical growth model and modern endogenous growth theory.