Quality Improvements in Models of Growth

Robert Barro and Xavier Sala-i-Martin

No 1076, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Technological progress takes the form of improvements in the quality of an array of intermediate inputs to production. In an equilibrium that is standard in the literature, all research is carried out by outsiders, and success means that the outsider replaces the incumbent as the industry leader. The equilibrium research intensity involves three considerations: leading-edge goods are priced above the competitive level, innovators value the extraction of monopoly rents from predecessors, and innovators regard their successes as temporary. We show that if industry leaders have lower research costs, leaders will carry out all the research in equilibrium. If the cost advantage is not too large, however, the equilibrium research intensity and growth rate depend on the existence of the competitive fringe and take on the same values as in the standard solution. We discuss the departures from Pareto optimality and analyse the determination of the economy's rate of return and growth rate.

Keywords: Endogenous Growth; Innovation; Quality Ladders; Technological Progress (search for similar items in EconPapers)
JEL-codes: O31 O32 O33 O40 O41 (search for similar items in EconPapers)
Date: 1994-11
References: Add references at CitEc
Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Quality Improvements in Models of Growth (1994)
Working Paper: Quality Improvements in Models of Growth (1994)
Working Paper: Quality improvements in models of growth (1994)
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