Knowledge, consumption, and endogenous growth

Abstract

In neoclassical theory, knowledge generates increasing returns — and therefore growth — because it is a public good that can be costlessly reused once created. In fact, however, much knowledge in the economy is actually tacit and not easily transmitted —and thus not an obvious source of increasing returns. Several writers have responded to this alarming circumstances by affirming hopefully that knowledge today is increasingly codified, general, and abstract — and increasingly less tacit. This paper disputes such a trend. But all is not lost: for knowledge does not have to be codified to be reused and therefore to generate economic growth.

Paper presented at the American Economic Association annual meeting, session on “Economic Growth — What Happens on the Demand Side?” January 4, 1999, and at the conference on “Interdisciplinary Approaches to the Study of Demand and its Role in Innovation,” Center for Research on Innovation and Competition, University of Manchester, January 13–14, 1999. I would like to thank participants at these conferences — especially Paul David, Brian Loasby, Richard Nelson, and Ulrich Witt — for helpful comments.