Technological Opportunity, Long-Run Growth, and Convergence

Abstract:     
We derive an R&D-based semi-endogenous growth model where technological progress depends on the available amount of technological opportunity. Incremental innovations provide direct increases in the knowledge stock but they reduce technological opportunity and thus the potential for further improvements. Technological opportunity can be renewed only by radical innovations (which have no direct impact on factor productivity). Investigating the model for its implications on economic growth leads to two basic observations. One, in the long-run, a balanced growth path with a constant and semi-endogenous long-run economic growth rate exists only in a specific knife-edge case which implies that technological opportunity and knowledge grow at equal rates. Two, the transition need not be monotonic. Specifically, we show under which conditions our model generates endogenous business cycles via complex dynamics without uncertainty.

Number of Pages in PDF File: 30

Keywords: technological opportunity, incremental innovation, radical innovation, endogenous business cycles, balanced growth, Andronov-Hopf bifurcation, complex dynamics

JEL Classification: E32, O30, O41

working papers series