G. Innovation Dynamics and Optimum Growth

Abstract

In all industrialized countries, achieving sustained economic growth in the sense of a long-run increase of output or output per capita is a crucial goal. From a neoclassical perspective, the basic growth models of SOLOW (1970) emphasize the role of the production function—and the respective input factors capital and labor—and the savings rate, respectively. Growth is modeled as a steady-state equilibrium phenomenon which is characterized by accumulation dynamics for capital and certain parameters of the utility function (DIXIT 1976). Modern growth theory to some extent has added emphasis on the role of human capital formation (LUCAS 1979), but the mechanics of the basic neoclassical growth model can be retained if one interprets capital as human capital or skilled labor.