Macroeconomic Dynamics

Notes

COMPARATIVE STATICS AND DYNAMICS OF THE ROMER R&D GROWTH MODEL WITH QUALITY UPGRADING

Lutz G. Arnolda1 c1 and Wolfgang Kornprobsta1

a1 University of Regensburg

Abstract

This paper replaces increasing product variety with quality upgrading in the Romer model [Romer, Paul M., Journal of Political Economy 98 (1990), S71–S102]. We show that the range of parameters for which a steady state exists can be divided into two subspaces with well-behaved comparative statics and saddle-point dynamics in one subspace, but with “perverse” comparative-statics properties and either equilibrium indeterminacy or instability in the other subspace. These results for the closed economy can also be used to characterize the dynamics of the M-country open-economy version of the model.

Keywords:

  • Endogenous Growth;
  • Transitional Dynamics;
  • Indeterminacy

Correspondence:

c1 Address correspondence to: Lutz G. Arnold, Economic Theory, Department of Economics, University of Regensburg, 93040 Regensburg, Germany; e-mail: lutz.arnold@wiwi.uni-r.de.

Footnotes

For helpful comments we are grateful to two anonymous referees. Any remaining errors are, of course, our responsibility.

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