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

Published online by Cambridge University Press:  01 November 2008

Lutz G. Arnold  and
Wolfgang Kornprobst
Lutz G. Arnold*
Affiliation:
University of Regensburg
Wolfgang Kornprobst
Affiliation:
University of Regensburg
*
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.
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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 GrowthTransitional DynamicsIndeterminacy
Type
Notes
Information
Macroeconomic Dynamics , Volume 12 , Issue 5 , November 2008 , pp. 702 - 716
Copyright
Copyright © Cambridge University Press 2008

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