Love of Novelty: A Source of Innovation-Based Growth... or Underdevelopment Traps?

Yuichi Furukawa, Tat-kei Lai and Kenji Sato
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Kenji Sato: Osaka Metropolitan University

Working Papers from IESEG School of Management

Abstract: This study develops a new dynamic general equilibrium model to explore the role of people’s love of novelty as a cultural preference in innovation and innovation-based growth. The model considers (a) an infinitely lived representative consumer who has standard love-of-variety preferences for differentiated products and additional love-of-novelty preferences for new products, and (b) technological progress driven by two costly and time-consuming innovation activities, new product development and existing product development. We demonstrate that consumers’ love of novelty is a source of innovation-based growth, wherein economies with a moderate love of novelty can achieve innovation and long-run growth through endogenous cycles between periods in which new product development is active and those in which existing product development is active. However, if love of novelty preference is too weak or too strong, the economy is caught in an underdevelopment trap with less innovation and no long-run growth. We also provide some suggestive empirical evidence that supports our theoretical predictions.

Keywords: Cultural preferences, macro-based behavioral economics; innovation and growth cycles; endogenous growth; underdevelopment traps (search for similar items in EconPapers)
JEL-codes: E71 O40 (search for similar items in EconPapers)
Pages: 40
Date: 2023-12
New Economics Papers: this item is included in nep-cse, nep-dge, nep-gro and nep-tid
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Working Paper: Love of Novelty: A Source of Innovation-Based Growth... or Underdevelopment Traps? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:e202406

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