Endogenous Growth and Structural Change Through Vertical and Horizontal Innovations

Abstract

This paper combines horizontal and vertical innovations to build an endogenous growth model that allows for structural change. Older technologies are continuously replaced by newer ones due to creative destruction and new technologies appear as a result of horizontal innovations and as a result of consumers' preferences for variety. We assume fixed operational costs for the manufacturing sector and an endogenously determined price of the patent for each new technology. The duration of a patent is not limited but every industry is profitable only for a certain period of time, thus making the effective time of existence of the technology endogenous and finite. We demonstrate that such an economy exhibits constant growth rates that are proportional to the average productivity growth, despite the ongoing disappearance of older technologies from the industry.JEL classification: O31, O34, O41

Economic development and the structure of cross-technology interactions

“…Instead, each firm is continuously developing its technology based on profit incentives coming from the payments of the firms using this technology for producing an intermediate good y i . The r&d sector is thus described by the usual monopolistic competition as in many recent growth papers (see, e.g., Akcigit and Kerr (2018), Bondarev and Greiner (2019), Peretto (2018)). As each r&d firm is a monopolistic supplier of its technology and as all firms using this technology are homogeneous, the price for this technology (e.g., a patent payment) will be set at each point of time (that is, for each set of technological qualities) to absorb all profits made in intermediate goods production.…”

Optimal R&D investment with learning‐by‐doing: Multiple steady states and thresholds

“…The model follows the lines of Belyakov, Tsachev, and Veliov, where the mathematical foundations for this type of models are discussed, but it is more closely to the stylized model in this study and the one in this study . Investments into horizontal and vertical innovations are determined by an intertemporal optimization problem subject to the laws of motion describing the productivity increase for each technology and subject to the process of variety expansion of the technologies.…”

“…The process of creative destruction has been modelled by Aghion and Howitt who assume that vertical innovations lead to a continuous improvement of the technologies in used replacing older ones. A combination of those 2 approaches has been presented in the contribution by Bondarev and Greiner that allows for simultaneous horizontal and vertical innovations in a model of economic growth, where both structural change and economic growth are endogenous phenomena.…”

The Promise and Pitfalls of Self-report

“…This advancement of methods (or lack thereof) for measuring latent constructs critical to educational research (self-report included) can be framed by Horizontal versus Vertical conceptions of development. This is a well-established framework for understanding growth (e.g., economic innovation; Bondarev, & Greiner, 2019) and change (e.g., natural selection; Lawrence, 2005) in a broad array of fields. Horizontal growth refers to innovating towards entirely new approaches, while vertical growth refers to refining and enhancing current methods.…”