ENDOGENOUS CYCLICAL GROWTH WITH A SIGMOIDAL DIFFUSION OF INNOVATIONS

Abstract

The model we propose in this paper is an extension of the one described in Freeman et al. [Freeman, S., Hong, D. and Peled, D. (1999) Endogenous Cycles and Growth with Indivisible Technological Developments. Review of Economics Dynamics, 2, 403–432]. In our model, we incorporate the process of diffusion of major innovations and analyze macroeconomic effects on consumption, capital and aggregate output. Following Bresnahan and Trajtenberg [Bresnahan, T. and Trajtenberg, M. (1995) General Purpose Technologies: Engines of Growth?. Journal of Econometrics, 65, 83–108.], Helpman [Helpman, E. (ed.) (1998) General Purpose Technologies and Economic Growth. MIT Press] and Lipsey et al. [Lipsey, R.G., Carlaw, K. and Bekar, C. (2005) Economic Transformations: General Purpose Technologies and Long Term Economic Growth. Oxford University Press.] we assimilate major innovations with the emergence of certain GPTs, and we suggest that the diffusion process for these technologies, at a large scale, might follow an S-shaped pattern. The proposed model presents optimum stationary solutions which are cyclical and have a wave dynamic within each cycle. The cycles are characterized by certain co-movements in consumption, R&D investment, capital accumulation and output. Consideration of the innovation diffusion process highlights new aspects of endogenous cycles and long-run growth.