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A Unified Theory of Growth, Cycles and Unemployment - Part I: Technology, Competition and Growth

Pollak, Andreas (2022): A Unified Theory of Growth, Cycles and Unemployment - Part I: Technology, Competition and Growth.

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Part I of this paper proposes a model of endogenous growth, in which the scale of individual production units is endogenously determined in a novel way. The basic model has desirable growth and static properties, including the following:

(1) The economy exhibits productivity growth at a constant rate that only depends on technology parameters; (2) at the aggregate level, the economy is identical to the neoclassical growth model, thus (3) featuring the full medium-term capital dynamics familiar from this framework; moreover, (4) the model explains why the aggregate production function and many industries exhibit constant returns to scale; (5) there are no unrealistic constraints on the firm-level production technology; in particular, production is not linear in a capital-like input and (6) the notion that R&D investments become less effective with rising technology levels is accounted for; (7) generally, there are no knife-edge conditions or implausible scale effects; (8) no particular assumptions regarding market power or the competitive structure of industries are required; markets can be modelled as perfectly competitive, but the framework is robust to alternative assumptions such as monopolistic competition; (9) being based on the quality-ladder idea, the model can be extended to feature the rich industry-level dynamics that have been studied using Schumpeterian growth models; (10) in its basic version, the model is far simpler while being more general than popular models of endogenous growth.

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