Abstract
A characterizing assumption of most neoclassical growth models is that technical change is exogenously given (typically as a constant rate of labor-augmenting, or Harrod-neutral, technical change). Since technical change is a main engine of growth, this exogeneity assumption begs one of the fundamental questions involved in explaining growth. This paper analyzes a neoclassical model which has been modified slightly to allow for endogenous technical change. The equilibrium path of the modified model is found to differ in crucial ways from the equilibrium path of the usual neoclassical growth model. For instance, the (asymptotic) equilibrium growth rate of the modified model is found to be positively related to the value of the savings rate; whereas one of the most powerful theorems of the usual neoclassical model is that the equilibrium growth rate is not affected by the savings rate. Sections I and II present the modified model and its equilibrium behavior; section III presents a rough empirical test of the modified model against a more usual neoclassical model; and section IV concludes.
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