Induced Innovation, Endogenous Growth, and Income Distribution: a Model along Classical Lines

Luca Zamparelli

No 1102, Working Papers CELEG from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: This paper presents a classical micro-founded growth model with endogenous direction and size of technical change. In a standard induced innovation model firms freely adopt productivity improvements from an innovation possibilities frontier describing the trade-off between increasing capital or labor productivity. The shape of the innovation possibility frontier uniquely determines the steady state distribution of income. The model proposed allows firms to choose not only the direction but also the size of innovation by making innovation a costly activity requiring R&D investment. Comparative dynamics analysis shows that income distribution is are sensitive to saving parameters and fiscal policy. In particular, an increase in the discount factor or in subsidy to R&D raises the labor share.

Keywords: Induced innovation; endogenous growth; direction of technical change; classical growth. (search for similar items in EconPapers)
JEL-codes: D33 O31 O33 O40 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-hme and nep-ino
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Citations: View citations in EconPapers (1)

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