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Animal spirits and the composition of innovation.

Cozzi, G. (2005) 'Animal spirits and the composition of innovation.', European economic review., 49 (3). pp. 627-637.


This paper shows that the Schumpeterian model with both vertical and horizontal innovative research admits many more equilibria than the unique symmetric balanced growth path (BGP) usually highlighted in the literature. Each of a continuum of BGPs is characterized by a different composition of aggregate R&D (vertical versus horizontal). This appears if firms expect self-fulfilling “waves of enthusiasm” in the newly introduced sectors, as is very common in the real world. Pioneers are challenged by more outsiders and the first monopoly of every new good is likely to last less than in more mature industries: By expecting this horizontal innovation is depressed while vertical innovation is more intense. Such “waves of enthusiasm” have a positive effect on growth rates and a negative effect on consumption levels.

Item Type:Article
Keywords:Schumpeterian growth model, Horizontal and vertical innovation, Indeterminacy, Sunspots.
Full text:Full text not available from this repository.
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Record Created:18 Feb 2010 14:50
Last Modified:20 Aug 2010 12:08

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