Capital and interest in horizontal innovation models

Man-Seop Park

Cambridge Journal of Economics, 2010, vol. 34, issue 4, 755-772

Abstract: Horizontal innovation models have a common structure of three sequentially connected sectors. This structure--production of commodities by means of commodities--necessitates the compounding of interest on an input that goes through multiple production periods before the final good is produced. I argue that this aspect is missed (or deliberately assumed away) in typical horizontal innovation models and that this practice generates internal inconsistency in relation to the long run nature of the models. Though discussion is carried out in particular reference to Barro and Sala-i-Martin's 'lab-equipment' model, implications are general. Copyright The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Date: 2010
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Working Paper: Capital and Interest in Horizontal Innovation Models (2007)
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