ECON 164 - Theory of Economic Growth - Week 6 - Ideas and Innovation

Q: What prevents endogenous growth in the NGM framework discussed in the recap?

The notes attribute it to diminishing returns to capital (α < 1), neoclassical assumptions like perfect competition with CRS and Inada conditions, and exogenous technological progress where no modeled choices determine gA.

Q: How do AK models generate sustained growth in the lecture?

They allow sustained growth through capital broadening; the vanilla AK model implies k˙ = k when α = 1, producing ongoing dynamics.

Q: What is the new direction starting in the next two weeks?

The lecture shifts toward ideas as a special economic good, proposing (semi-)endogenous growth models where innovation is deliberate and idea accumulation is costly, with A growing endogenously.

Sep 18, 2026

Uploaded by 4398046744996

Week 6 lecture notes for ECON 164 on the theory of economic growth, focusing on how innovation can generate growth through deliberate idea accumulation. The recap contrasts endogenous growth with the NGM framework, showing how diminishing returns to capital, neoclassical assumptions, and exogenous technological progress prevent endogenous growth. The notes then review AK-style sustained-growth mechanisms and introduce a shift: innovation may be intentional, requiring (semi-)endogenous growth models with costly ideas and firm innovation of new or better varieties.

LanguageEnglish

CategoryExam

FormatPDF

Pages113

Reading Time4 h 45 min

AccessFree to download

Recap

Why NGM prevents endogenous growth

AK models and sustained growth

Deliberate innovation

Focus on ideas as an economic good

(Semi-)endogenous growth with costly idea accumulation

Next two weeks outlook

Ideas, variety creation, and frontier economies

Technology diffusion

ECON 164: Theory of Economic Growth Week 6: Ideas and Innovation Levi Crews Spring 2026 Recap • “endogenous growth” ≡ long-run gy > 0 determined by modeled choices Recap • “endogenous growth” ≡ long-run gy > 0 determined by modeled choices • three key features of NGM combine to prevent endogenous growth: • diminishing returns to capital (α < 1) • neoclassical assumptions: perfect competition, F (·, ·) is CRS w/ Inada conditions • exogenous technological progress: no modeled choices determine gA Recap • “endogenous growth” ≡ long-run gy > 0 determined by modeled choices • three key features of NGM combine to prevent endogenous growth: • diminishing returns to capital (α < 1) • neoclassical assumptions: perfect competition, F (·, ·) is CRS w/ Inada conditions • exogenous technological progress: no modeled choices determine gA • last time: AK models generate sustained growth thru broadened K • vanilla AK model: k˙ = k b/c α = 1 • Uzawa-Lucas model: h˙ = h w/ CRS in {K, h} • pure externality model: B = AK 1 −α → collapses to vanilla AK Recap • “endogenous growth” ≡ long-run gy > 0 determined by modeled choices • three key features of NGM combine to prevent endogenous growth: • diminishing returns to capital (α < 1) • neoclassical assumptions: perfect competition, F (·, ·) is CRS w/ Inada conditions • exogenous technological progress: no modeled choices determine gA • last time: AK models generate sustained growth thru broadened K • vanilla AK model: k˙ = k b/c α = 1 • Uzawa-Lucas model: h˙ = h w/ CRS in {K, h} • pure externality model: B = AK 1 −α → collapses to vanilla AK • but, at best, innovation is accidental → what if it’s deliberate? Next two weeks • focus on ideas → a special kind of economic good • “instructions for mixing raw materials together” • will require dropping neoclassical assumptions Next two weeks • focus on ideas → a special kind of economic good • “instructions for mixing raw materials together” • will require dropping neoclassical assumptions • build (semi-)endogenous growth models w/ costly , deliberate idea accumulation • share aggregate dynamics in which A grows endogenously •... b/c firms invent new varieties of goods (Romer, 1990) [Week 6] •... b/c firms invent better varieties of goods (Aghion and Howitt, 1992) [Week 7] Next two weeks • focus on ideas → a special kind of economic good • “instructions for mixing raw materials together” • will require dropping neoclassical assumptions • build (semi-)endogenous growth models w/ costly , deliberate idea accumulation • share aggregate dynamics in which A grows endogenously •... b/c firms invent new varieties of goods (Romer, 1990) [Week 6] •... b/c firms invent better varieties of goods (Aghion and Howitt, 1992) [Week 7] • disclaimer: these are models of “frontier” economies • discuss how technology diffuses to the rest of the world [Week 8] The Idea Diagram Ideas → Nonrivalry → Increasing returns → Imperfect competition What is an idea? “instructions for mixing raw materials together”→ how to do more/better with less

FAQs

What prevents endogenous growth in the NGM framework discussed in the recap?

The notes attribute it to diminishing returns to capital (α < 1), neoclassical assumptions like perfect competition with CRS and Inada conditions, and exogenous technological progress where no modeled choices determine gA.

How do AK models generate sustained growth in the lecture?

They allow sustained growth through capital broadening; the vanilla AK model implies k˙ = k when α = 1, producing ongoing dynamics.

What is the new direction starting in the next two weeks?

The lecture shifts toward ideas as a special economic good, proposing (semi-)endogenous growth models where innovation is deliberate and idea accumulation is costly, with A growing endogenously.

Sep 18, 2026

Uploaded by 4398046744996