Innovation Races, Strategic Externalities and Endogenous Growth

Louis Corriveau

Economica, 1998, vol. 65, issue 259, 303-325

Abstract: I expound a tractable model of an infinite‐horizon multi‐sector economy where endogenous growth in the aggregate results from innovation races which go on in each and every sector. I identify five externalities that have strategic implications: the ‘contemporaneous real income’, the ‘lagged real income’, the ‘aggregate demand’, the ‘Shleifer’ and the ‘competition’ effects. I prove that multiple stationary equilibria can exist and lead to different rates of growth, and show that, in any stationary equilibrium, the rate of growth is constant. Finally, I prove that the rate of growth may be higher or lower than social welfare warrants.

Date: 1998
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