ACCOUNTING FOR GROWTH WITH NEW INPUTS

This paper examines the aggregate production function in an economy ch aracterized by the creation of new, intermediate inputs. We show how g rowth can be decomposed into changes in higher quantities of existing inputs, and a greater range of inputs. Indexes of total factor product ivity would reflect the latter. We also construct a dynamic monopolist ic-competition model in which products are endogenously introduced, an d simulate that model to produce artificial data. When used in standar d growth-accounting regressions, the data can appear to be generated b y an economy with exogenous technical change and (approximately) const ant returns to primary factors.