Modelling Policy Change in Endogenous Growth Theory

Ilkka Kiema ()
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Ilkka Kiema: Labour Institute for Economic Research LABORE

No 359, Working Papers from Työn ja talouden tutkimus LABORE, Labour Institute for Economic Research LABORE

Abstract: Innovation-based endogenous growth (IBEG) models are often used for evaluating R&D related policies. In such evaluations different policies correspond to different long-run balanced growth paths. If the model contains predetermined state variables, whose values cannot change discontinuously, the model economy cannot immediately move to a new long-run equilibrium after policy change. However, the transition paths from one long-run equilibrium to another have until now been left unanalyzed in the context of many important IBEG models. The theory of dynamic systems provides tools for such analyses. We review theory of dynamical systems and the development of IBEG models. We apply the theory of dynamical systems to Romer’s model of growth by specialization, and we recapitulate the reasons that make the transition paths of the first quality ladder models trivial and unique. We point out that the transition paths of many newer quality ladder models pose much more challenging problems.

Keywords: endogenous growth theory; R&D policy; dynamical systems; economic growth; productivity (search for similar items in EconPapers)
JEL-codes: E10 O32 O38 O41 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2026-03-11
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