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Wants and Past Knowledge: Growth Cycles with Emerging Industries

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  • Ryo Horii

    (Osaka University)

Abstract

This paper develops a theory of endogenous growth cycles focusing on the interaction between consumers' desire to satisfy an indefinite range of wants and firms' 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 consumers' 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.

Suggested Citation

  • Ryo Horii, 2005. "Wants and Past Knowledge: Growth Cycles with Emerging Industries," Development and Comp Systems 0504007, University Library of Munich, Germany, revised 10 Jan 2006.
  • Handle: RePEc:wpa:wuwpdc:0504007
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    References listed on IDEAS

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    Cited by:

    1. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.

    More about this item

    Keywords

    endogenous growth; technology choice; wants; knowledge; cycles.;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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