Self-Fulfilling Expectations and Economic Growth: A Model of Technology Adoption and Industrialization.

In this work, the authors construct a model that integrates both industrialization and endogenous growth. They feature the role of technology adoption in sustaining growth and achieving industrialization. The authors' economy contains multiple equilibria for an initial history. They found that only self-fulfilling expectations matter in selecting an equilibrium, whereas history plays no role. The authors' equilibrium is shown to involve a threshold property: when the economy starts above this threshold, the economy is able to sustain growth; otherwise, it is not. Both the rate of economic growth and the process of industrialization increase gradually and approach an upper hound. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.