Direction and Intensity of Technical Change: a Micro Model

Luca Zamparelli ()

No 4, Working Papers from Doctoral School of Economics, Sapienza University of Rome

Abstract: This paper develops a growth model combining elements of endogenous growth and induced innovation literatures. In a standard induced innovation model firms select at no cost innovations from an innovation possibilities frontier describing the trade-off between increasing capital or labor productivity. The model proposed allows firms to choose not only the direction but also the size of innovation by representing the innovation possibilities through a cost function of capital and labor augmenting innovations. By so doing, it provides a micro-foundation both of the intensity and of the direction of technical change. The policy analysis implies that an increase in subsidies to R&D as opposed to capital accumulation raises per capita steady state growth, employment rate and wage share.

Keywords: Induced innovation; endogenous growth; direction of technical change (search for similar items in EconPapers)
JEL-codes: O31 O33 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eff, nep-ino, nep-knm, nep-lab and nep-mic
Date: 2009-02
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