Animal spirits and the composition of innovation in a lab-equipment R&D model with transition

What is it about?

This paper analyses the effect of animal spirits, or sunspots, on the composition of aggregate R&D, the consumption level and economic growth in an endogenous growth model of vertical and horizontal R&D, both along the balanced-growth path (BGP) and transition. The model is developed in the light of a number of well-known empirical observations pertaining to R&D and growth: (i) the existence of “waves of enthusiasm”, according to which new industries are temporarily flooded by higher R&D expenditure; (ii) insignificant or negative correlation between the per-capita GDP growth rate and both the rate of population growth and aggregate R&D intensity, measured as the fraction of output devoted to R&D; (iii) time-varying speeds of convergence, driven by technological factors.

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