Embodied learning by investing and speed of convergence

Abstract

We study transitional dynamics and speed of convergence in economic growth. Based on a canonical framework the analysis revisits both “old” and “new” growth literature along three dimensions: (i) What if growth is not exogenous but endogenous and driven by learning by doing? (ii) What if technical progress is embodied rather than disembodied? And (iii) what if the vehicle of learning is gross investment as in the Arrowian tradition rather than net investment as in most recent contributions? From both a theoretical and a quantitative point of view we show that the speed of convergence (both asymptotically and in a finite distance from the steady state) depends strongly and negatively on the importance of learning in the growth engine and on gross investment being the vehicle of learning rather than net investment. And contrary to a presumption from “old growth theory”, a rising degree of embodiment in the wake of the computer revolution is not likely to raise the speed of convergence when learning by investing is the driving force of productivity increases.