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Chapter10_EndogenousGrowth_032909

Chapter10_EndogenousGrowth_032909 - Endogenous Growth Model...

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Endogenous Growth Model Juan Rubio-Ram°rez Duke University and Federal Reserve Bank of Atlanta March 29, 2009 Juan Rubio-Ram°rez (DUKE) Endogenous Growth Model March 29, 2009 1 / 47
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A Theory of Technological Progress Remember from the Neoclassical growth model: g = A t + 1 ° A t A t = y t + 1 ° y t y t Growth depends on technological progress. Good thing: now we know where to look at. Challenge: we need a theory of technological progress. Big contribution of growth literature over the last two decades. Juan Rubio-Ram°rez (DUKE) Endogenous Growth Model March 29, 2009 2 / 47
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Ideas as Engine of Growth Technology: the way inputs to the production process are transformed into output. Technological progress due to new ideas: 1 Products. 2 Managerial practices. 3 Business models. Why (and under what circumstances) are resources are spent on the development of new ideas? Juan Rubio-Ram°rez (DUKE) Endogenous Growth Model March 29, 2009 3 / 47
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Historians of Science versus Economists Many historians of science focus on the autonomous role of science in developing inventions and progress (the ±Newton paradigm²). However, economists emphasize the role of pro³t. Classical study of Schmokler ( Invention and Economic Growth , 1963): innovation is determined by the size of the market. Examples: 1 Horseshoe, many innovations in the late XIXth century and early XXth century, stop afterwards. 2 Drugs for Malaria versus drugs for male impotence. Juan Rubio-Ram°rez (DUKE) Endogenous Growth Model March 29, 2009 4 / 47
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Ideas What is an idea? What are the basic characteristics of an idea? 1 Ideas are nonrivalrous goods. 2 Ideas are, at least partially, excludable . Juan Rubio-Ram°rez (DUKE) Endogenous Growth Model March 29, 2009 5 / 47
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Di/erent Types of Goods 1 Rivalrous goods that are excludable: almost all private consumption goods, such as food, apparel, consumer durables fall into this group. 2 Rivalrous goods that have a low degree of excludability: tragedy of the commons. 3 Nonrivalrous goods that are excludable: most of what we call ideas falls under this point. 4 Nonrivalrous and nonexcludable goods: these goods are often called public goods. Juan Rubio-Ram°rez (DUKE) Endogenous Growth Model March 29, 2009 6 / 47
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Examples of Di/erent Goods Juan Rubio-Ram°rez (DUKE) Endogenous Growth Model March 29, 2009 7 / 47
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Nonrivalrousness and Excludability of Ideas Nonrivalrousness: implies that cost of providing the good to one more consumer, the marginal cost of this good, is constant at zero. Production process for ideas is usually characterized by substantial ³xed costs and low marginal costs. Think about software. Excludability: required so that ³rm can recover ³xed costs of development. Existence of intellectual property rights like patent or copyright laws are crucial for the private development of new ideas.
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