Introduction and Motivation

Abstract

The question of why economic activity grows is amongst the oldest and most prominent ones in economic analysis. In his classic paper, Solow [1956] suggested a formal model of macroeconomic growth where this growth is driven by the accumulation of factors of production (labour and capital) and by technical change. The dynamics of technical change has not been further specified in this neoclassical growth model but has been assumed to occur exogenously or “autonomously”. Although this assumption was strongly simplifying with regard to the process of technical change it allowed the implications of mere factor accumulation to be distinguished from the effects of technical change on the dynamics of economic growth. Hence the neoclassical growth theory allowed both phenomena to be considered as two different and isolated ones.

Knowledge is our most powerful engine of production; it enables us to subdue Nature and force her to satisfy our wants.

Alfred Marshall