Innovation and Growth: The Relationship between Short- and Long-term Properties of Processes of Economic Change
Endogenous growth theory focuses on changes in input—output relations in order to bring to light the endogenous sources of growth. This is so whether an increase in the saving rate and hence in the fraction of output invested is considered, as in the simplest models, or a diversion of resources into R&D so as to speed up the process of innovation is instead taken into account, as in the most sophisticated ones. Different productive structures are required to sustain different growth rates, but the appearance of a productive capacity with a different structure, or the production of a new technology, are not simply the matter of a different input/output relationship: allocation of resources is just the preliminary step of a process through which these changes will be brought about: ‘The hard part is to model what happens then’ (Solow, 1994, p. 52). A shift of resources, which equilibrium models automatically identify with the result that it should bring about, may instead generate a very complex dynamics that can even lead the economy to a collapse.
KeywordsWage Rate Productive Capacity Final Output Final Demand Endogenous Growth Model
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