References and Literature
Models of endogenous technological progress were introduced in Romer (1987 and 1990), and then subsequently analyzed by, among others, Segerstrom, Anant and Dinopoulos (1990), Grossman and Helpman (1991a,b), Aghion and Howitt (1992).
The lab-equipment model presented in Section 13.1 appears in Rivera-Batiz and Romer (1991). The model in Romer (1990) is similar to that presented in Section 13.2, but with skilled workers working in R&D. Gancia and Zilibotti (2005) provide an excellent survey of many of the models discussed in this chapter. Matsuyama (1995) gives a very lucid and informative discussion of the sources of inefficiency in Dixit-Stiglitz type models, which is related to the sources of inefficiency in the lab-equipment model presented in Section 13.1.The critique of endogenous growth models because of scale effect is contained in Backus, Kehoe and Kehoe (1992) and in Jones (1995). The first of these papers pointed out that countries with larger sizes (either without adjustment or adjusted for international trade) do not grow faster in the postwar era. Jones (1995), on the other hand, focused on time-series patterns and pointed out the substantial increase in R&D inputs, for example, the total number of workers involved in research, with no corresponding increase in the equilibrium growth rate. Others argued that looking at the 20th century data may not be sufficient to reach a conclusion on whether there is a scale effect or not. Kremer (1993) argues, on the basis of estimates of world population, that there must have been an increase in economic growth over the past one million years. Laincz and Perreto (1996) argue that R&D resources allocated to specific product lines have not increased.
The model in Section 13.3 is similar to that presented in Jones (1995) and Jones (1999). As pointed out there, these models generate sustained growth of per capita income, but the growth rate of the economy does not respond to policies or preferences (given the rate of population growth). A number of authors have developed models of endogenous growth without scale effect, where policy might have an effect on the equilibrium growth rate. See, among others, Dinopoulos and Thompson (1998), Segerstrom (1998), Howitt (1999) and Young (1998). Aghion and Howitt (1998) and Ha and Howitt (2005) argue that semi-endogenous growth models along these lines also faced difficulties when confronted with the time-series evidence.
The model of expanding product varieties was first suggested by Judd (1985), but in the context of a model of exogenous growth. The endogenous growth models with expanding product variety is presented in Grossman and Helpman (1991a,b). The treatment here is somewhat different from that in Grossman and Helpman, especially because we used the ideal price index rather than Grossman and Helpman’s choice of total expenditure as the numeraire.
13.7.