Rich transitional dynamics, physical capital, and technology intensity

• Published in: Oxford economic papers Vol. 69; no. 3; pp. 678 - 706
• Main Authors: Gil, Pedro Mazeda, Almeida, André, Castro, Sofia B.S.D.
• Format: Journal Article
• Language: English
• Published: Oxford Oxford University Press 01-07-2017; Oxford Publishing Limited (England)
• Subjects: Convergence; Economic growth; Economic models; Endogenous; Growth models; Innovations; R&D; Research & development; Specification; Studies; Technology
• ISSN: 0030-7653; 1464-3812
• DOI: 10.1093/oep/gpw045

This paper develops a non-scale growth model with physical capital and two types of R&D under a lab-equipment specification, where both the intensive and extensive growth margins are fully endogenous. We study analytically the long-run equilibrium and transitional dynamics properties of the model, and establish meaningful sufficient conditions for saddle-path stability. We relate the different combinations of initial conditions of the dynamical system with the observation of monotonic versus non-monotonic transitional dynamics. Our model is able to predict monotonic, hump-shaped, and inverted hump-shaped trajectories, therefore encompassing the diverse convergence behaviour observed in the empirical data on modern growth experiences.