Contents

Abstract 112

Keywords 112

1. Introduction 113

2. Growthwithexpandingvariety 116

2.1. Thebenchmarkmodel 116

2.2. Twovariationsofthebenchmarkmodel: “lab-equipment” and “labor-for intermediates” 120

2.3.

3. Trade, growth and imitation 124

3.1. Scale effects, economic integration and trade 124

3.2. Innovation, imitation and product cycles 127

4. Directed technical change 130

4.1. Factor-biased innovation and wage inequality 131

4.2. Appropriate technology and development 136

4.3. Trade, inequality and appropriate technology 140

5. Complementarityininnovation 144

6. Financial development 150

7. Endogenousfluctuations 157

7.1. Deterministiccycles 158

7.2. Learning and sunspots 162

8. Conclusions 166

Acknowledgements 166

References 166