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A Model Of Growth Through Creative Destruction

  • AGHION, P.
  • HOWITT, P.

A model of endogenous growth is developed in which growth is driven by vertical innovations that involve creative destruction. Equilibrium is determined by a forward-looking difference equation, according to which the amount of research in any period depends negatively upon the amount expected next period. The paper analyzes positive and normative properties of stationary equilibria, and shows conditions for the existence of cyclical equilibria and no-growth traps. The growth rate may be more or less than optimal because a business-stealing effect counteracts the usual spillover and appropriability effects. In addition, innovations tend to be too small. Copyright 1992 by The Econometric Society.

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Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 527.

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Length: 49 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:mit:worpap:527
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  1. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December.
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  9. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  10. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
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  12. Hausman, Jerry & Hall, Bronwyn H & Griliches, Zvi, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," Econometrica, Econometric Society, vol. 52(4), pages 909-38, July.
  13. Shleifer, Andrei, 1986. "Implementation Cycles," Scholarly Articles 3451303, Harvard University Department of Economics.
  14. Grandmont Jean-michel & Laroque Guy, 1985. "Stability of cycles and expectations," CEPREMAP Working Papers (Couverture Orange) 8519, CEPREMAP.
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  16. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
  17. Zvi Griliches, 1989. "Patents: Recent Trends and Puzzles," NBER Working Papers 2922, National Bureau of Economic Research, Inc.
  18. Raymond Deneckere & Kenneth Judd, 1986. "Cyclical and Chaotic Behavior in a Dynamic Equilibrium Model," Discussion Papers 734, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
  20. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-85, May.
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  23. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December.
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