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on Economic Growth |
| By: | Ilkka Kiema |
| Abstract: | Innovation-based endogenous growth (IBEG) models are often used for evaluating R&D related policies. In such evaluations different policies correspond to different long-run balanced growth paths. If the model contains predetermined state variables, whose values cannot change discontinuously, the model economy cannot immediately move to a new long-run equilibrium after policy change. However, the transition paths from one long-run equilibrium to another have until now been left unanalyzed in the context of many important IBEG models. The theory of dynamic systems provides tools for such analyses. We review theory of dynamical systems and the development of IBEG models. We apply the theory of dynamical systems to Romer’s model of growth by specialization, and we recapitulate the reasons that make the transition paths of the first quality ladder models trivial and unique. We point out that the transition paths of many newer quality ladder models pose much more challenging problems. |
| Keywords: | endogenous growth theory, R&D policy, dynamical systems, economic growth, productivity |
| JEL: | E10 O32 O38 O41 |
| Date: | 2026–03–11 |
| URL: | https://d.repec.org/n?u=RePEc:pst:wpaper:359 |
| By: | Ohki, Kazuyoshi |
| Abstract: | This paper provides benchmark R&D-based growth models in which both vertical and horizontal growth rates are fully endogenous. In traditional models with both vertical and horizontal innovation, horizontal growth or a weighted average of vertical and horizontal growth is often constrained by population growth along the balanced growth path. This paper shows that this restriction arises from balanced-growth requirements imposed by market-clearing conditions and that it can be removed by appropriately specifying R&D externalities. The result is robust across models that differ in the input used in R&D and in the structure of vertical innovation. The reconstructed models also show that innovation policies affect not only the level of growth but also the composition of growth between vertical and horizontal innovation. The proposed formulation therefore provides a tractable building block for richer R&D-based growth models. |
| Keywords: | Economic Growth, R&D, Vertical innovation, Horizontal innovation |
| JEL: | O31 O32 O41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:130110 |
| By: | Fernando E. Alvarez (The University of Chicago, Department of Economics and NBER); Francisco J. Buera (Washington University in St. Louis, Department of Economics and NBER); Nicholas Trachter (Federal Reserve Bank of Richmond) |
| Abstract: | We study optimal policy in a dynamic general equilibrium model where heterogeneous monopolistically competitive firms pay a fixed cost to adopt a frontier technology that grows exogenously. Using Mean Field Games tools, we show that the optimal policy consists of exactly two time-invariant subsidies: one correcting the static misallocation from market power, and one correcting the dynamic under-incentive to adopt. This holds outside of balanced growth paths, for any initial distribution of technology gaps. We analyze a simplified version of the model that aggregates to a Neoclassical Growth Model with an S-shaped production function whenever complementarities are strong, and fully characterize when the optimal policy uniquely implements the first best. When it does not, two novel results emerge: the efficient allocation prescribes escaping a poverty trap—providing an explicit optimality foundation for a Big Push—and, more surprisingly, escaping an abundance trap, where dismantling adopted technologies is optimal. In both cases, a temporary, costless supplementary policy restores unique implementation. |
| JEL: | D92 O14 O25 O40 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfi:wpaper:2026-59 |