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Capital and Interest in Horizontal Innovation Models

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  • Man-Seop Park

    () (Department of Economics, Korea University)

Abstract

A typical horizontal innovation model has three sequentially connected sectors. I argue that this structure of the model necessitates the compounding of interest on an input that goes through multiple production periods before the final good is produced. This aspect is missed (or deliberately assumed away) in typical horizontal innovation models and I contend that this practice generates internal inconsistency in relation to the long run nature of the models. I propose the correction which will restore internal consistency and discuss its implications. Though discussion is carried out in particular reference to Barro and Sala-i-Martin's "labequipment" model, implications are general.

Suggested Citation

  • Man-Seop Park, 2007. "Capital and Interest in Horizontal Innovation Models," Discussion Paper Series 0728, Institute of Economic Research, Korea University.
  • Handle: RePEc:iek:wpaper:0728
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w0728.pdf
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    References listed on IDEAS

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    1. S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
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    Cited by:

    1. Man-Seop Park, 2015. "The Impossibility of Capitalist Instantaneous Production," Metroeconomica, Wiley Blackwell, vol. 66(1), pages 28-50, February.

    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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