Schumpeterian growth with variable demand elasticity

Gilad Sorek

Economic Inquiry, 2025, vol. 63, issue 4, 1110-1126

Abstract: Variable Demand Elasticity preferences are introduced into a canonical two‐sector R&D model. The departure from the traditional CES specification yields novel growth dynamics: for a sufficiently high population growth rate, a semi‐endogenous balanced growth path (“BGP”) of drastic innovation is characterized, along which economic growth is determined by the population growth rate. However, for a sufficiently low population growth rate, the model economy converges to the limit values of demand elasticity and a fully endogenous growth regime of non‐drastic innovation. A few stylized facts undermine the empirical relevance of the semi‐endogenous BGP with drastic innovation to developed economies.

Date: 2025
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https://doi.org/10.1111/ecin.13302

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