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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 University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 8904.

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Length: 49 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:uwo:uwowop:8904
Contact details of provider: Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. Grandmont, Jean-Michel & Laroque, Guy, 1986. "Stability of cycles and expectations," Journal of Economic Theory, Elsevier, vol. 40(1), pages 138-151, October.
  3. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-90, December.
  4. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  5. 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.
  6. Zvi Griliches, 1989. "Patents: Recent Trends and Puzzles," NBER Working Papers 2922, National Bureau of Economic Research, Inc.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  8. Reinganum, Jennifer F, 1985. "Innovation and Industry Evolution," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 81-99, February.
  9. Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-84, July.
  10. 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.
  11. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
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  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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