Technology Choice and Patterns of Growth in an Overlapping Generations Model

This paper investigates the equilibrium dynamics of an economy where two production technologies are available: One is a primitive production technology which realizes constant returns to scale, and the other is an advanced technology, which exhibits increasing returns to scale due to specialization of intermediate goods production. It is shown that if investors' choice of technology is introduced, then even a quite simple two-period overlapping generations model can generate an endogenous cycle, a poverty trap, or permanent growth. The paper also discusses how underdeveloped countries can achieve production that puts them on a permanent growth path