Endogenous vs. Semi‐endogenous Growth in a Two‐R&D‐Sector Model

Abstract

This paper contributes to the endogenous versus semi-endogenous growth debate by establishing that semi-endogenous growth is more general than endogenous growth in a two-R&Dsector growth model. It is demonstrated that endogenous growth requires two`knife-edge' conditions of parameters. This ®nding (i) is in sharp contrast to recent two-R&D-sector models that show that long-run growth is endogenous, and (ii) resurrects the policy conclusion of semi-endogenous growth that government policy is not effective in raising the underlying growth rate of an economy. The driving force of these results is knowledge spillovers between two R&D activities, which are largely neglected in existing studies.

The Past and Future of Knowledge-Based Growth

“…In order to explain this phenomenon we develop a novel R&D-based growth 1 R&D Models of the third generation (Peretto, 1998;Young, 1998;and Howitt, 1999) combine features of the earlier generations by investigating quality R&D and variety R&D. Assuming that there exist no knowledge spillovers between quality and variety R&D they predict that only variety growth is essentially associated with population growth while constant quality growth requires a constant population. Allowing for knowledge spillovers between sectors re-establishes the positive association between population growth and productivity growth, see Li (2000). 2 A quantitative exercise employing the conventional R&D-based growth model (Jones, 2003) expects R&D-based growth to converge to 0.06 percent annually assuming -in contrast to the UN population predictions -that the labor force in the G-5 countries continues to grow at 1.2 percent annually.…”

Forward looking dynamics in spatial CGE modelling

“…As Li (2000) puts it, semi-endogenous growth means that (i) technological change itself is endogenous, but (ii) long-run growth is pinned down by exogenous parameters, the consequence being that straightforward policies do not affect the long-run growth rate. In our case, endogenous technological change has the scale economies in the tradables sector as its source.…”

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

“…In fact, Dinopolous and Thompson (1998), Peretto (1998), and Young (1998) considered models with both types of R&D activities and they obtained that growth is dependent on endogenous (without scale-effects) and semi-endogenous separate components. However, these models assumed that there are spillovers in vertical R&D and they are absent in horizontal R&D. Li (2000) points out that the result according to which the output growth rate depends partially on the growth rate of population and partially on an nonscale endogenous component is dependent on a knife-edge condition that combines spillovers from both R&D sectors. Generally, Li (2000) shows that besides this knife-edge condition, output growth can be endogenous growth with scale effects or semi-endogenous growth, totally dependent on the growth rate of population.…”

“…However, these models assumed that there are spillovers in vertical R&D and they are absent in horizontal R&D. Li (2000) points out that the result according to which the output growth rate depends partially on the growth rate of population and partially on an nonscale endogenous component is dependent on a knife-edge condition that combines spillovers from both R&D sectors. Generally, Li (2000) shows that besides this knife-edge condition, output growth can be endogenous growth with scale effects or semi-endogenous growth, totally dependent on the growth rate of population. In parallel with this literature, another stretch of literature introduced human capital in endogenous growth models with R&D, beginning with Arnold (1998Arnold ( , 2000a.…”