Endogenous Growth and Entropy

Tiago Sequeira, Pedro Gil and Oscar Afonso

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: This paper offers novel insights regarding the role of complexity in both the transitional and the long-run dynamics of the economy. We devise an endogenous growth model using the concept of entropy as a state-dependent complexity effect. This allows us to gradually diminish scale effects as the economy develops along the transitional dynamics, which conciliates evidence on the existence of scale effects in history with evidence of no or reduced scale effects in today’s economies. We show that empirical evidence supports entropy as a “first principle” operator of the complexity effect. The model features endogenous growth, with null or small (positive or negative) scale effects, or stagnation, in the long run. These different long-run possibilities have also policy implications. Then, we show that the model can replicate well the take-off after the industrial revolution and the productivity slowdown in the second half of the XXth century. Future scenarios based on in-sample calibration are discussed, and may help to explain (part of) the growth crises affecting the current generation.

Keywords: endogenous economic growth; complexity effects; entropy. (search for similar items in EconPapers)
JEL-codes: E22 O10 O30 O40 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2018-04
New Economics Papers: this item is included in nep-gro, nep-his, nep-hme and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Endogenous growth and entropy (2018)
Working Paper: Endogenous Growth and Entropy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:por:cetedp:1804

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