Internal Increasing Returns to Scale and Economic Growth

29 Pages Posted: 8 Jan 2012 Last revised: 10 Jul 2022

See all articles by John A. List

John A. List

University of Chicago - Department of Economics

H Zhou

ODU

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

Abstract

This study develops a model of endogenous growth based on increasing returns due to firms' technology choices. Particular attention is paid to the implications of these choices, combined with the substitution of capital for labor, on economic growth in a general equilibrium model in which the R&D sector produces machines to be used for the sector producing final goods. We show that incorporating oligopolistic competition in the sector producing finals goods into a general equilibrium model with endogenous technology choice is tractable, and we explore the equilibrium path analytically. The model illustrates a novel manner in which sustained per capita growth of consumption can be achieved -- through continuous adoption of new technologies featuring the substitution between capital and labor. Further insights of the model are that during the growth process, the size of firms producing final goods increases over time, the real interest rate is constant, and the real wage rate increases over time.

Suggested Citation

List, John A. and Zhou, H, Internal Increasing Returns to Scale and Economic Growth (March 2007). NBER Working Paper No. w12999, Available at SSRN: https://ssrn.com/abstract=1981573

John A. List (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

H Zhou

ODU ( email )

VA
United States

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