Endogenous Growth: A Sequential Stochastic Search Model for New Technology

Nguyen Van Quyen () and M. H. Zahedi Vafa ()
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Nguyen Van Quyen: Department of Economics, University of Ottawa
M. H. Zahedi Vafa: Department of Economics, University of Ottawa

No 0104E, Working Papers from University of Ottawa, Department of Economics

Abstract: Endogenous growth theories developed initially along two broad trends: one emphasizes knowledge and dynamics, with explicit modeling of knowledge accumulation; the other takes a broader view of capital and encompasses human capital in its definition. The scale effect critique initiated another trend that looks deeper inside the black box of technological change and its interactions with capital accumulation. This paper follows the last trend and builds upon the sequential search model of Bental and Peled (1996). Considering the uncertainty inherent in any search process, the model presents a dynamic stochastic system in which new technology and capital accumulation are bounded complements they complement each other to a point, but beyond this the impact of each factor is constrained by the level of the other. As a result, both technological progress and capital accumulation are necessary for sustained growth, but neither on its own is sufficient. Technological advancement stimulates capital accumulation by raising the marginal product of capital. Rapid capital accumulation stimulates R&D investments by raising the expected profitability of innovation. This paper discusses different possible regimes that an economy may find itself in as a result of the interactions between capital accumulation and technological innovations and has important implication for growth-promoting policies, knowledge spillover, and international flow of capital.

Keywords: Endogenous Growth; Search Theory; Innovation; Technology (search for similar items in EconPapers)
JEL-codes: D83 D9 O31 O41 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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