TY  - JOUR
AU  - List,John A.
AU  - Zhou,Haiwen
TI  - Internal Increasing Returns to Scale and Economic Growth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12999
PY  - 2007
Y2  - March 2007
UR  - http://www.nber.org/papers/w12999
L1  - http://www.nber.org/papers/w12999.pdf
N1  - Author contact info:
John List
Department of Economics
University of Chicago
1126 East 59th
Chicago, IL 60637
Tel: 301/405-1288
Fax: 301/314-9091
E-Mail: jlist@uchicago.edu

Haiwen Zhou
Department of Economics
Old Dominion University
E-Mail: hzhou@odu.edu
AB  - This study develops a model of endogenous growth based on increasing returns due to firms' technology choices.  Particular attention is paid to the implications of these choices, combined with the substitution of capital for labor, on economic growth in a general equilibrium model in which the R&D sector produces machines to be used for the sector producing final goods.  We show that incorporating oligopolistic competition in the sector producing finals goods into a general equilibrium model with endogenous technology choice is tractable, and we explore the equilibrium path analytically.  The model illustrates a novel manner in which sustained per capita growth of consumption can be achieved -- through continuous adoption of new technologies featuring the substitution between capital and labor.  Further insights of the model are that during the growth process, the size of firms producing final goods increases over time, the real interest rate is constant, and the real wage rate increases over time.
ER  -