A Note on Endogenous Growth and Scale Effects: Reconciling Recent and (Very) Long-Run Evidence

11 Pages Posted: 3 Apr 2007  

Phillip Garner

Brigham Young University - Department of Economics

Date Written: April 2007

Abstract

The endogenous growth models of the early 1990's predicted scale effects: larger population - more resources devoted to R&D - faster productivity growth. As pointed out by Jones (1995) this prediction is not consistent with the experience of industrialized countries like the U.S. over the post-WWII period. However, as argued persuasively by Kremer (1993), there is evidence for the existence of scale effects in technology creation over the very long-run, i.e. centuries or thousands of years. This paper reconciles this recent vs. long-run evidence by extending Howitt's (1999) model of endogenous growth without scale effects to include a subsistence constraint in consumption. When an economy is poor and the subsistence constraint is binding, innovation tends to be concentrated in a limited number of 'subsistence' sectors like basic food stuffs, producing scale effects initially. As the economy grows richer and the constraint is relaxed, consumers begin to value more other types of goods and services, R&D becomes spread over an increasing number of sectors, and long-run scale effects vanish.

Keywords: Endogenous Growth, Scale Effects, Subsistence Cons

JEL Classification: O30, O40

Suggested Citation

Garner, Phillip, A Note on Endogenous Growth and Scale Effects: Reconciling Recent and (Very) Long-Run Evidence (April 2007). Available at SSRN: https://ssrn.com/abstract=977268 or http://dx.doi.org/10.2139/ssrn.977268

Phillip Garner (Contact Author)

Brigham Young University - Department of Economics ( email )

130 Faculty Office Bldg.
P.O. Box 22363
Provo, UT 84602-2363
United States

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