Model Of Endogenous Technological Change Research Articles

CAN THE OPTIMAL TARIFF BE ZERO FOR A GROWING LARGE COUNTRY?

AbstractCan the optimal tariff be zero for a growing large country? To pursue the possibility, we extend the Rivera‐Batiz–Romer lab‐equipment model of endogenous technological change to include asymmetric countries, import tariffs, and either homogeneous or heterogeneous firms. Each country's domestic revenue share is a sufficient statistic for its long‐run growth rate, but it is not for its long‐run welfare. A unilateral tariff reduction by either country always increases the balanced growth rate. A zero tariff is locally optimal for a country under a mild condition, which is automatically satisfied at a symmetric balanced growth path with the zero tariff.

Through scarcity to prosperity: Toward a theory of sustainable growth

To make progress toward a comprehensive theory of sustainable growth, this paper integrates fertility choice and exhaustible resource dynamics in a tractable model of endogenous technological change. The model identifies conditions under which the interdependence of population, resources and technology produces a transition that consists of three phases: (1) an initial phase where agents exploit exhaustible natural resources to support population growth; (2) an intermediate phase where agents turn on the Schumpeterian engine of endogenous innovation in response to population-led market expansion; (3) a terminal phase where knowledge accumulation becomes the sole engine of growth. The last phase is crucial: not only economic growth no longer requires growth of physical inputs, but technological change also compensates for the exhaustion of the natural resource.

Innovation-led growth in a time of debt

We study the effects of large reductions in government budget deficits (labeled “fiscal consolidations”) on firms’ entry, innovative investments, productivity and per capita output growth in a model of endogenous technological change. Due to the absence of lump-sum taxes, temporary budget deficits set government debt-output ratios on unsustainable paths. An equilibrium then requires the specification of a date at which the debt-output ratio is stabilized at a constant finite value. We discipline parameters using post-war observations for the U.S. economy. We find that fiscal consolidations produce persistent growth slowdowns, permanently lowering the path of per capita output relative to a benchmark economy in which the fiscal consolidation is achieved with lump-sum taxes. These output losses are sizable. In this sense, government debt is a burden on the economy. Tax-based consolidations produce output losses that are twice as large as those from spending-based consolidations.

From Solow to Romer: Teaching endogenous technological change in undergraduate economics

Undergraduate students learn economic growth theory through the seminal Solow model, which takes the growth rate of technology as given. To understand the origin of technological progress, we need a model of endogenous technological change. The Romer model fills this important gap in the literature. However, given its complexity, undergraduate students often find the Romer model difficult. This paper proposes a simple method of teaching the Romer model. We add three layers of structure (one at a time) to extend the familiar Solow model into the less familiar Romer model. First, we incorporate a competitive market structure into the Solow model. Then, we modify the competitive market structure into a monopolistic market structure. Finally, we introduce an R&D sector that invents new products.

Through Scarcity to Prosperity: A Theory of the Transition to Sustainable Growth

This paper integrates fertility choice and exhaustible resource dynamics in a tractable model of endogenous technological change. The analysis shows that, under the right conditions, the interdependence of population, resources and technology produces a transition from unsustainable resource-based growth to sustainable knowledge-based growth that consists of three phases: (1) an initial phase where agents build up the economy by exploiting exhaustible natural resources to support population growth; (2) an intermediate phase where agents turn on the Schumpeterian engine of endogenous innovation in response to population-led market expansion; (3) a terminal phase where growth becomes fully driven by knowledge accumulation and no longer requires growth of physical inputs. The last phase is crucial: not only economic growth no longer requires growth of physical inputs, but technological change also compensates for the exhaustion of the natural resource stock.

Factor Income Distribution and Endogenous Economic Growth - When Piketty Meets Romer

We scrutinize Thomas Piketty’s (2014) theory concerning the relationship between an economy’s long-run growth rate, its capital-income ratio, and its factor income distribution put forth in his recent book Capital in the Twenty-First Century. We find that a smaller long-run growth rate may be associated with a smaller capital-income ratio. Hence, the key implication of Piketty’s Second Fundamental Law of Capitalism does not hold. In line with Piketty’s theory a smaller long-run growth rate may go together with a greater capital share. However, the mechanics behind this result are the opposite of what Piketty suggests. Our findings obtain in variants of Romer’s (1990) seminal model of endogenous technological change. Here, both the economy’s savings rate and its growth rate are endogenous variables whereas in Piketty’s theory they are both exogenous parameters. Including demographic growth in the spirit of Jones (1995) shows that a smaller growth rate of the economy may imply a lower capital share contradicting a central claim in Piketty’s book.

Ideas and Growth

This paper introduces and partially develops a new model of endogenous technological change, viewed as the product of a class of problem‐solving producers. The model, based on earlier work by Eaton and Kortum, is built up from the premise that all knowledge resides in the head of some individual person and the knowledge of a firm, or economy, or any group of people is simply the knowledge of the individuals that comprise it. The model is applied to an economy with a cohort structure. A calibration of the model using cross‐section earnings data, in addition to aggregate GDP growth, is considered.

On Population Growth and Technological Change: Selectivity Bias in Historical Analysis

This paper investigates the relationship between population growth and technological change. After an historical overview of the evolution of world population, alternative models of population growth are examined. They include a Malthusian model, a model of endogenous technological change, and a model of population growth that allows for switching regimes between Malthusian resource limitation and endogenous technological change. The regime-switching model stresses the potential for a biased interpretation of historical data. While there is strong empirical evidence supporting endogenous technical change, it is argued that the Malthusian scenario should not be overlooked even if the odds of facing it are low.

Economic Challenges for Global Governance

Trade and investment liberalization policies put in place in the 1980’s ushered in a new era of globalization and currently form the mainstay of global development policy. However, underdevelopment itself originated in the context of globalization in the 19th century. I first summarize the salient facts of global economic growth and development since the Industrial Revolution, namely: the central roles of productivity, trade and foreign direct investment (FDI), the concentration of innovation, the deindustrialization of the periphery, the Great Divergence, persistence of middle per-capita income levels, miracle growth, the demographic transition, the role of institutions and conditional convergence. I then present, in diagrammatic form, a model of endogenous technological change explaining how trade and FDI raise the world growth rate but focus innovation in advanced and larger countries, thus generating multiple steady states in economic growth. The theory explains the simultaneous historical emergence of development and underdevelopment. So long as underdevelopment persists this generates a polarized, rather than an equal, form of globalization. Nevertheless, an adequate orchestration of the forces of globalization ensuring that technological change accrues equally across countries can break the cycle of inequality and generate economic development everywhere. Such policies, based on export promotion, technological adoption, human capital formation and infrastructure investment, not only are economically favorable to all, tending to raise the world growth rate, but also tend to strengthen democratic institutions everywhere, to accelerate the demographic transition in the Third World, and promote a more harmonious global economic integration.

Factor Productivity in the Argentinean Agriculture

This paper is aimed at investigating the endogeneity of the total factor productivity in the Argentinean agriculture. In a simple model ofendogenous technological change, the implementation of new techniques of production would depend upon sectoral relative prices, and upon the overall endowment of capital and land relative to labor. It is found that the estimations using data covering the years 1939-1984 do not reject the hypothesis of endogeneity of technological change as a function of the aforementioned variables. It is also found that the fiscal deficit negatively affects the implementation of new techniques. The coefficient of labor in the value added of the agricultural sector (cereals and oilseeds, livestock and fisheries) is 0.28 according to the estimates of the 1973 input-output matrix data, a value that is very close to the estimate used in this paper.

Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI

It is a widely held belief that foreign direct investment (FDI) has a positive effect on economic growth. We test this hypothesis by performing convergence regressions derived from a model of endogenous technological change. We estimate the rate of growth in per-capita income, relative to the per-capita income of the United States, in terms of US FDI, human development, financial development, and trade. We apply a panel approach, instrumenting for explanatory variables and correcting for correlated errors by clustering by countries. The heterogeneity of FDI is taken into account by considering various FDI-related activities - in addition to the conventionally used FDI stocks and flows. Furthermore, we draw on industry-specific FDI data, rather than exclusively on aggregated data. Our empirical analysis puts into question the currently prevailing euphoria about FDI as a means to induce economic catching-up processes of developing countries. We conclude that the central challenge facing policymakers is not to attract FDI, but to improve the local conditions required to benefit from the widely perceived unique advantages of FDI. In addition, our findings support the proposition that FDI stocks do not adequately reflect FDI-related economic activities.

Indeterminacy and Stability in a Modified Romer Model

This paper considers the well known Romer model of endogenous technological change and its extension where different intermediate capital goods are complementary, introduced in (Benhabib, Perli, and Xie 1994). They have shown that this modification allows indeterminate steady state for relatively mild degrees of the complementarity. The authors were able to derive analytically sufficient conditions for the indeterminacy and to find specific parameter values producing the indeterminate steady state. For the modified Romer model of (Benhabib, Perli, and Xie 1994), I derive necessary and sufficient conditions for the steady state to be interior and strictly positive. I show that Hopf bifurcation to the absolutely stable steady state is impossible and the steady state is determinate if the model parameter values belong to a certain set. Considering a simplified version of the model, I calculate necessary conditions for a Hopf bifurcation in one special case and show that it is impossible in another. Using numerical algorithm for multigoal optimization, I obtain several sets of parameter values leading to the loss of stability of the indeterminate steady state through Hopf bifurcation.

Endogenous Technological Change under Uncertainty

textabstractHow does risk or uncertainty in the productivity of research affect the growth rate of the economy? To answer this question, a model of endogenous technological change is used where sustained growth stems from intentional investments in R&D from profit-maximizing firms. The uncertainty arises from the productivity of these investments in R&D. The main result of this analysis is that the relationship between long-run growth and uncertainty (on the productivity of knowledge creation) depends on two main factors - the returns to scale in knowledge creation (increasing or non-increasing) and the value of the elasticity of intertemporal substitution or lower than some critical value).Based on empirical studies on the returns to scale in knowledge creation (non-increasing) and the value of the elasticity of intertemporal substitution (higher than the critical value), we expect a negative relationship between long-run growth and uncertainty regarding the productivity of knowledge creation.

Energy Costs, Endogenous Innovation, and Long-run Growth / Energiekosten, endogener technischer Fortschritt und Wirtschaftswachstum

Summary Based on the observation that energy costs have been decreasing over much of the 20th century, this paper extends the Romer (1990) model of endogenous technological change to examine the impact of secular changes in energy costs on technological progress and long-run growth. The key finding is that decreasing energy costs, while unambiguously increasing the rate of growth of output, enhance or reduce the rate of technological progress depending on the representative household's elasticity of marginal utility. A calibration exercise shows that even if technological progress is actually neither enhanced nor reduced, the endogenous innovation model of growth predicts a substantially stronger effect of energy costs on growth than the neoclassical model.

Stability of the market equilibrium in Romer's model of endogenous technological change: A complete characterization

Despite much interest in the dynamic behavior of endogenous growth models, the dynamics of probably the most influential endogenous growth model, Romer's celebrated model of Endogenous Technological Change, has not yet been fully analyzed. This gap in the literature is filled by the present paper. It is shown that a unique and monotonic growth path converges to the steady state. No indeterminacies can arise, as already shown by Benhabib, Perli and Xie. Instability and cyclical behavior are likewise ruled out—the equilibrium growth path is “well-behaved.”

Endogenous technological change: a note on stability

This paper demonstrates that the steady-state solution of the optimal-growth problem in Romer's (1990) model of endogenous technological change is globally saddle-point stable. Surprisingly, the proof of this result is trivial. Interest in the optimal growth path is justified by the fact that there is a (unique) combination of production and R&D subsidies by means of which the optimal growth path is attained as a market equilibrium.

Endogenous growth in a cross-section of countries

We estimate two versions of Romer’s model of endogenous technological change that allow for population growth and human capital accumulation. In one of these versions, estimates from international cross-sectional data yield parameter values that are consistent with prior information, and tests of overidentifying restrictions are not rejected. Trade openness increases the effectiveness with which human capital generates new knowledge, and improves the model’s predictive performance. The Romer model represents a valuable template on which to build more sophisticated models of endogenous long-run growth without scale effects.

Endogenous Technological Change and Wage Inequality

Although microeconomic studies find a positive relationship between R&D and skill premia, much of the recent rise in U.S. wage inequality was accompanied by slowing labor-productivity growth and relatively slow introduction of new technologies. These conflicting observations are consistent with the effects of a skewed distribution of “absorptive capacities”—the rate at which technology-specific skills can be acquired—in a model of endogenous technological change. The framework is used to assess whether the productivity slowdown and the rise in wage inequality can be jointly accounted for by the contemporaneous decline in the growth rate of labor quality. (JEL E24, J31, O3)

Variety, Spillovers and Market Structure in a Model of Endogenous Technological Change

Growth theorists have produced a number of interesting models investigating the idea that technological progress, the engine of growth in income per capita, is endogenous to the economic system and driven by market forces. These models are radically different from the traditional theory of economic growth based on capital accumulation and emphasize the incentives for profit-seeking agents to undertake R&D aimed at developing new products and processes, or incrementally improving old ones. In particular, infinitely lived and perfectly enforceable patents generate local monopolies by assigning to the innovator the exclusive right to manufacture and sell the new good.1 The emphasis on the non-rivalry of knowledge and the patent law makes clear that imperfect markets and monopoly power are necessary for profit-seeking agents to undertake R&D and innovation. However, these models focus exclusively on monopolistic competition to describe market structure and firms’ behaviour. In addition, the emphasis on the patent market and free entry in R&D neglects the fact that most innovations are carried out by established producers. As a consequence, these models neglect the central role of the oligopolistic corporation and its in-house integration of manufacturing and R&D. Thus, the theory does not address those components of the market structure, like concentration, firm size and market rivalry, emphasized by Schumpeter (1942) as key determinants of the R&D activity of profit-seeking firms.