We study the real long‐run effects of the structural stance of monetary policy and of inflation, in the context of a monetary growth model where R&D is complemented with physical capital accumulation. We look into the effects on a set of real macroeconomic variables that have been of interest to policymakers—the economic growth rate, real interest rate, physical investment rate, capital‐to‐labor ratio, R&D intensity, and velocity of money. These variables have been previously analyzed from the perspective of different, separated, strands of the theoretical and empirical literature. Additionally, we analyze the long‐run relationship between inflation and both the effectiveness of real industrial‐policy shocks and the market structure, assessed namely by average firm size. We present novel cross‐country evidence on the empirical relationship between the latter and long‐run inflation.
This paper offers novel insights regarding the role of complexity in both the transitional and the long-run dynamics of the economy. We devise an endogenous growth model using the concept of entropy as a state-dependent complexity effect. This allows us to gradually diminish scale effects as the economy develops along the transitional dynamics, which conciliates evidence on the existence of scale effects in history with evidence of no or reduced scale effects in today's economies. We show that empirical evidence supports entropy as a "first principle" operator of the complexity effect.The model features endogenous growth, with null or small (positive or negative) scale effects, or stagnation, in the long run. These different long-run possibilities have also policy implications. Then, we show that the model can replicate well the take-off after the industrial revolution and the productivity slowdown in the second half of the XX th century. Future scenarios based on in-sample calibration are discussed, and may help to explain (part of) the growth crises affecting the current generation.Keywords: endogenous economic growth, complexity effects, entropy.JEL Classification: O10, O30, O40, E22 * Previous versions of this paper circulated under the title "Growth without scale effects due to entropy". We thank the helpful comments on earlier versions from Jaime Alonso, Margarida Duarte, Yuichi Furukawa, Reyer Gerlagh, Jakub Growiek, Harry Huizinga, Pietro Peretto, Xavier Raurich, John Seater, Sjak Smulders, and participants in the 10 th Portuguese Economic Journal Conference (Univ. Coimbra
A negative or nonsignificant empirical correlation between aggregate R&D intensity and the economic growth rate is a well-known fact in the empirical growth literature, but scarcely addressed in the theoretical growth literature. This paper develops an endogenous-growth~model that explores the interrelation~between horizontal and vertical R&D under a lab-equipment specification that is consistent with that stylized fact. A key feature is that the growth rate is fully endogenous both on the intensive and on the extensive margin. Strong composition effects between horizontal and vertical R&D, along both transition and the balanced-growth path, then emerge as the main mechanism producing those results. This setting also allows us to obtain a relationship between economic growth and firm dynamics that is consistent with the empirical facts.
By means of an endogenous growth model of directed technical change with vertical and horizontal R&D, we study a transitional-dynamics mechanism that is consistent with the changes in the shares of the high- versus the low-tech sectors found in recent European data. Under the hypothesis of a positive shock in the proportion of high-skilled labor, the technological-knowledge bias channel leads to unbalanced sectoral growth with a noticeable shift of resources across sectors. A calibration exercise suggests that the model is able to account for up to from 50 to about 100 percent of the increase in the share of the high-tech sector observed in the data from 1995 to 2007. However, the model predicts that the dynamics of the share of the high-tech sector has no significant impact on the dynamics of the economic growth rate.
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