Wants and past knowledge: Growth cycles with emerging industries

Ryo Horii

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

This paper develops a theory of endogenous growth cycles focusing on the interaction between consumers' desire to satisfy an indefinite range of wants and firms' incentive to utilize knowledge from past production experiences. We show that firms endogenously form a number of distinguishable industries as accumulated knowledge induces them to agglomerate in the technology space. Knowledge accumulation in existing industries reduces production costs, but, as the diminishing returns from learning sets in, some firms start to adopt previously unexplored technologies so that their new goods fit consumers' unsatisfied wants and attract large demand. Thus, sporadic emergence of new industries generates growth cycles, where both the timing and the new technology to be adopted are endogenously determined. New industries based on new technology reduce the rate of per capita GDP growth in the initial phase, but nonetheless are indispensable for sustained economic growth in the long run.

Original languageEnglish
Pages (from-to)220-238
Number of pages19
JournalJournal of Economic Dynamics and Control
Volume36
Issue number2
DOIs
Publication statusPublished - 2012 Feb 1

Keywords

  • Cycles
  • Endogenous growth
  • Knowledge
  • Technology choice
  • Wants

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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