Abstract: This paper extends a model of endogenous growth through the introduction of a component of knowledge that makes new technologies more productive than older vintages. The paper characterizes equilibrium transitional and long-run properties for the economy. The phenomenon of creative destruction, or obsolescence, of technologies underlies the growth process. In this set up, the growth effects of various policies are analyzed. These policies include vintage-specific subsidies to firms that produce final output, a general lump-sum tax on final-output firms, and openness to trade with a less developed country. The results show the existence of growth effects that are absent in previous literature.

B.E. Journal of Macroeconomics: Topics , 4, article 9, 2004 download