A growth model with qualities, varieties, and human capital: stability and transitional dynamics

• Published in: Studies in nonlinear dynamics and econometrics 2014-12, Vol.18 (5), p.543-555
• Main Authors: Sequeira, Tiago Neves, Ferreira-Lopes, Alexandra, Gomes, Orlando
• Format: Article
• Language: English
• Subjects: Economic development; Economic history; endogenous growth models; Equilibrium; Growth models; Human capital; O11; O15; O31; O33; O41; R&D; Research & development; steady-state stability; Studies; transitional dynamics; vertical and horizontal R&D
• ISSN: 1081-1826; 1558-3708
• DOI: 10.1515/snde-2013-0018

This article analyses the stability properties of the steady-state and the transitional dynamics of an endogenous growth model with human capital, increasing-varieties R&D, and quality-ladders R&D [Strulik, H. 2005. “The Role of Human Capital and Population Growth in R&D-Based Models of Economic Growth.” 13 (1): 129–145.]. We show that when spillovers within R&D sectors are higher than spillovers across the two R&D sectors, the equilibrium is unstable. However, when spillovers between sectors are higher than within, the equilibrium is a saddle-path. This result emphasizes the need for empirical research that compares quantitatively the importance of these two types of spillovers and highlights the importance of studying intersectoral effects between the two R&D sectors. We describe plausible paths of economic development after changes in crucial parameters and uncover some transitional effects that were impossible to detect in the steady-state analysis. We also show that this model’s transition dynamics can mimic the main features of the process of productivity slowdown that began in the 1970s.