Capital and Knowledge: Integrating Arrow’s Learning-by-Doing, the Walrasian Equilibrium Theory and Neoclassical Growth Theory

This article proposes a neoclassical growth model with endogenous capital accumulation and knowledge creation. The model integrates Arrow’s learning by doing, Uzawa’s two-sector growth model and Walrasian general equilibrium theory. We use a utility function, which determines leisure time, saving and consumption with utility optimization without leading to a higher dimensional dynamic system like the Ramsey approach. The dynamics of J-household economy is described by a ( J + 1)-dimensional differential equations system. We simulate the motion of the model and demonstrate transitional and long-term effects of changes in the propensity to save, the propensity to use leisure time, the population, the learning-by-doing efficiency and knowledge utilization efficiency. The comparative dynamic analysis provides some insights into issues related to inequality and growth.JEL Classification: D51, D31, O41, E13