Most papers studying the impacts of technology adoption on income trajectories assume that firms adopt frontier technologies when available. If these technologies are skill intensive, less-developed economies may fail in successfully implementing them and may become trapped in a low-growth equilibrium. Within a Schumpeterian growth model, we show that differences in adoption barriers and incentives to the accumulation of skills produce differences in the technology level that is optimal to adopt. If the economy is not overly distorted, copying nonfrontier technologies helps compensating for the scarcity of skills and increases the likelihood of copying frontier technologies in the long run. If distortions are significant, it may be optimal to copy less-advanced technologies even in the long run. If adoption is not a skill-intensive activity, then copying frontier technologies is always optimal; all economies achieve a high-growth equilibrium and only income differences persist in the long run.

Several papers show that a privatization of the social security system will not be politically supported by the current generations. The asymmetry in the timing of welfare gains and losses is what generates a status quo bias in favor of the unfunded system. We explore a simple mechanism to offset the status quo problem using a general-equilibrium overlapping generations model with endogenous labor supply calibrated to the Spanish economy. The mechanism implies a privatization of the social security system together with the elimination of compulsory retirement rules. Along the transition path, this mechanism drastically shortens (from three decades to only one decade) the convergence to the new steady state, diminishing the asymmetry in the timing of welfare gains and losses. As a result, there is an increase beyond 50% in the fraction of individuals that are better off with the implementation of such a reform.This work has benefited from useful comments by Jonathan Heathcote, Antonio Manresa, and seminar participants at CREB, Carlos III de Madrid, ESF Network in Social Insurance, and Stockholm School of Economics. We acknowledge financial support from Ministerio de Ciencia y Tecnología (SEC2000-0796) and Generalitat de Catalunya (SGR00-016).

This paper considers an optimal endogenous growth model where the production function is assumed to exhibit increasing returns to scale and two types of resource (renewable and nonrenewable) are imperfect substitutes. Natural resources, labor, and physical capital are used in the final goods sector and in the accumulation of knowledge. Based on results in the calculus of variations, a direct proof of the existence of an optimal solution is provided. Analytical solutions for the planner case, balanced growth paths, and steady states are found for a specific CRRA utility and Cobb–Douglas production function. It is possible to have long-run growth where both energy resources are used simultaneously along the equilibrium path. As the law of motion of the technological change is not concave, reflecting the increasing returns to scale, so that the Arrow–Mangasarian sufficiency conditions do not apply, we provide a sufficient condition directly. Transitional dynamics to the steady state from the theoretical model are used to derive three convergence equations of output intensity growth rate, exhaustible resource growth rate, and renewable resource growth rate, which are tested based on OECD data on production and energy consumption.

We examine the determinants of income mobility and inequality in a Ramsey model with elastic labor supply and heterogeneous wealth and ability. Both agents with lower wealth and those with greater ability tend to supply more labor, implying that labor supply decisions may have an equalizing or unequalizing effect depending on the relative importance of the two sources of heterogeneity. Moreover, these decisions are central to the extent of mobility observed in an economy. The relationship between mobility and inequality is complex. For example, a reduction in the interest rate and an increase in the wage rate reduce capital income inequality and allow upward mobility of the ability-rich. However, the increase in the labor supply of high-ability agents in response to higher wages raises earnings dispersion and thus has an offsetting effect. As a result, high mobility can be associated with an increase or a decrease in overall income inequality.

This paper explores the dynamics of semiendogenous versus fully endogenous growth models in “lab equipment” specifications of the models with expanding sectors. Capital is allowed to accumulate and is used, together with other inputs, to produce new knowledge. The stability of the steady state path is found to be determined by the inequality and/or knife-edge restrictions needed to produce steady state growth. This paper takes the ratio of the shadow price of capital to knowledge and the level of consumption as jump variables. Semiendogenous growth models lead to a 4 × 4 dynamic system where the sign of the coefficient matrix of the log linearized dynamic system is indefinite, leading to a potential for both stable and unstable equilibria. The knife-edge restrictions needed to generate policy influences on growth are shown to be restrictions that reduce the system to 3 × 3 with a positive definite coefficient matrix, thereby guaranteeing a globally stable equilibrium. Implications for empirical testing are addressed.

This note shows that Lemma 3 in the paper by Tiago N. Sequeira [R&D spillovers in an endogenous growth model with physical capital, human capital and varieties, Macroeconomic Dynamics (2011)] is insufficient to guarantee stability and provides an alternative sufficient condition for stability.

In this paper we investigate the growth implications of relative wealth preferences in a small open economy model. Domestic capital accumulation, subject to installation costs, is the engine of economic growth in this framework. Crucial in deriving the balanced growth rate is the effective rate of return that arises from agents' status preferences. This results not only in a common balanced growth rate for consumption, the domestic capital stock, and net international financial assets, but also saddle-path dynamics in response to structural shifts. We investigate the short- and long-run dynamics of the model by considering the following standard fiscal shocks: (i) government expenditure, (ii) capital tax, (iii) tax on international financial assets, (iv) consumption tax. Among our results, we find that a permanent fiscal expansion leads to a temporary increase in growth and that a rise in the consumption tax results in a temporary decrease in growth.

It has been shown that the Ramsey growth model with agents that differ in their initial wealth endowments is compatible with a wide range of distributional outcomes, yet it is difficult to characterize under which circumstances the distribution of wealth becomes more or less unequal. In this note, we characterize the steady state distribution of wealth and compare it to the initial distribution, obtaining analytical conditions for one to be more skewed than the other. We show that whether wealth inequality increases or decreases during the transition to the steady state depends on simple and intuitive conditions on parameter values. Standard values for these parameters indicate that it is more likely that wealth inequality decreases as the economy accumulates capital.

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.

We propose the relaxation algorithm as a simple and powerful method for determining the transition process in growth models numerically. This method has a number of important advantages: (1) It can easily deal with a wide range of dynamic systems including stiff differential equations and systems giving rise to a continuum of stationary equilibria. (2) The application of the procedure is fairly user-friendly. The only input required consists of the dynamic system. (3) The variant of the relaxation algorithm we propose exploits in a natural manner the infinite time horizon, which usually underlies optimal control problems in economics. As an illustrative application, we compute the transition process of the models of Jones [Jones, C.I. (1995) R&D-based models of economic growth. Journal of Political Economy 103 (3), 759–784] and Lucas [Lucas, R.E., Jr. (1988) On the mechanics of economic development. Journal of Monetary Economics 22, 3–42].

This paper devises a fiscal policy by means of which the first-best optimal equilibrium can be attained as a market equilibrium in an endogenous growth model with public capital. The optimal equilibrium requires that public (private) investment be zero along the transition to the balanced growth path if the initial ratio of public to private capital is higher (lower) than its long-term value. We also show that the transitional dynamics can be determined by noting that the continuity of the shadow prices involves the continuity of the consumption path.

Several papers show that a privatization of the social security system will not be politically supported by the current generations. The asymmetry in the timing of welfare gains and losses is what generates a status quo bias in favor of the unfunded system. We explore a simple mechanism to offset the status quo problem using a general-equilibrium overlapping generations model with endogenous labor supply calibrated to the Spanish economy. The mechanism implies a privatization of the social security system together with the elimination of compulsory retirement rules. Along the transition path, this mechanism drastically shortens (from three decades to only one decade) the convergence to the new steady state, diminishing the asymmetry in the timing of welfare gains and losses. As a result, there is an increase beyond 50% in the fraction of individuals that are better off with the implementation of such a reform.This work has benefited from useful comments by Jonathan Heathcote, Antonio Manresa, and seminar participants at CREB, Carlos III de Madrid, ESF Network in Social Insurance, and Stockholm School of Economics. We acknowledge financial support from Ministerio de Ciencia y Tecnología (SEC2000-0796) and Generalitat de Catalunya (SGR00-016).

We obtain the transitional dynamics of the decentralized economy described by P.M. Romer and characterize the dynamic behavior of the most relevant variables. We determine the existence of a stable one-dimensional manifold containing a steady state with innovation, unique in ratios, and also find a threshold in the accumulation of physical capital below which the economy is not innovating. Finally, using simulations, we assess the significance of this threshold and analyze the influence that technological and utility parameters have on it.