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Wants and Past Knowledge: Growth Cycles with Emerging Industries

  • Ryo Horii


    (Graduate School of Economics, Osaka University)

This paper develops a theory of endogenous growth cycles focusing on the interaction between consumersf desire to satisfy an indefinite range of wants and firmsf incentive to utilize knowledge from past production experiences. We show that firms endogenously form a number of distinguishable industries as accumulated knowledge induces them to agglomerate in the technology space. Knowledge accumulation in existing industries reduces production costs, but, as the diminishing returns from learning sets in, some firms start to adopt previously unexplored technologies so that their new goods fit consumersf unsatisfied wants and attract large demand. Thus, sporadic emergence of new industries generates growth cycles, where both the timing and the new technology to be adopted are endogenously determined. New industries based on new technology reduce the rate of per capita GDP growth in the initial phase, but nonetheless are indispensable for sustained economic growth in the long run.

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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 06-03.

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Length: 41 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:osk:wpaper:0603
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