Technological opportunity, long-run growth,and convergence

We derive an R&D-based semi-endogenous growth model where technological progressdepends on the available amount of technological opportunity. Incremental innovationsprovide direct increases in the knowledge stock but they reduce technological opportunityand thus the potential for further improvements. Technological opportunity can be renewedonly by radical innovations (which have no direct impact on factor productivity).Investigating the model for its implications on economic growth leads to two basicobservations. One, in the long-run, a balanced growth path with a constant and semiendogenouslong-run economic growth rate exists only in a specific knife-edge case whichimplies that technological opportunity and knowledge grow at equal rates. Two, thetransition need not be monotonic. Specifically, we show under which conditions our modelgenerates endogenous business cycles via complex dynamics without uncertainty....