Endogenous technical change with externalities in a classical growth model

Government spending composition, aggregate demand, growth, and distribution

“…Pioneering analyses can be found in Kennedy (1964) and Drandakis and Phelps (1966). Neoclassical revivals of this literature focusing on microeconomic foundations appear in Funk (2002) and Acemoglu (2002), while Foley (2003), Julius (2006), and Zamparelli (2015) apply the framework to Classical labor-constrained models of growth. None of these contributions features a role for the public sector, which is central in our analysis.…”

“…This is known as induced technical change hypothesis: a higher wage share induces firms to direct technical change towards labor saving innovations (Kennedy, 1964;Drandakis and Phelps, 1966;Funk, 2002;Foley, 2003;Julius, 2006;Zamparelli, 2015). It would be quite natural, then, to relate the growth rate of labor productivity to the overall labor shareω.…”

“…In particular, we look at the composition of government spending between investment in public infrastructure capital -which directly augments the production possibilities of an economy-and unproductive (although not necessarily useless) public employment -which increases the overall labor share. The main novelty in our contribution lies in combining the idea that public spending is crucial in fostering innovation and growth (Mazzucato, 2013) with the induced innovation hypothesis -a staple in the heterodox thinking about long-run growthaccording to which productivity growth is an increasing function of the wage share (Foley, 2003;Julius, 2006;Dutt, 2013b). In particular, the interaction between public infrastructure and income shares (in turn influenced by government consumption) in determining the growth rate of labor productivity over time results in a hump-shaped relationship between long-run growth and government spending composition.…”

Overtakable Capitalist Growth Paths

“…Due in its outlines to Kennedy (1964) andvon Weizsäcker (1966) and lately revived by Lévy (1995, 2003), Funk (2002), Acemoglu (2002), Foley (2003), and Julius (2005), this idealization of the innovation process gives pure expression to the idea that profitability acts as a social filter on technical change, selecting its tendential bias between labor and capital. I want to consider the resulting direction of productive change from a social point of view that I'll introduce in the next section.…”

“…The laws of motion (9, 10, 11), first put together by Shah and Desai (1981) and reconsidered in Foley (2003), make a complete dynamical system in ω, υ, ρ. It turns out that by wedding endogenously directed technical change with the reserve-army wage-and-accumulation dynamics of Goodwin (1967) and Marx, this model arrives at a powerful explanation of the apparent long-run trendlessness of output-capital ratios and wage shares in growing capitalist economies.…”