A Cellular Automata Model of Schumpeterian Growth

Pari Kasliwal - University of California at Los Angeles

New growth theory has reinstated a crucial role for investment which endogenously generates technological progress. Yet this theory remains seriously flawed in its implicit neoclassical view that knowledge must have an opportunity cost. We formulate an alternative growth model that focuses directly on knowledge creation and diffusion. Then investment flows play only a subsidiary role, and dispense with the needless complication of diminishing MP on stocks of physical or human capital. The implications of our cellular automata model have substantial empirical support: (i) all policies that encourage investment are significant for long term growth; (ii) convergence will never occur since the productivity dispersion can fluctuate but never explode or implode; (iii) income disparities across or within countries are thus an inevitable consequence; (iv) openness in trade, capital, and knowledge flows encourages knowledge diffusion; (v) human capital plays a role so far as it enhances social capability; this implies policy that ensures a minimum threshold level of education rather than unlimited HC accumulation.

Scheduled for Session 1.4 Evolutionary Models - I