INNOVATION RACES, STRATEGIC EXTERNALITIES AND ENDOGENOUS GROWTH

I expound a tractable model of an infinite-horizon multi-sector econom y where endogenous growth in the aggregate results from innovation rac es which go on in each and every sector. I identify five externalities that have strategic implications: the 'contemporaneous real income', the 'lagged real income', the 'aggregate demand', the 'Shleifer' and t he 'competition' effects. I prove that multiple stationary equilibria can exist and lead to different rates of growth, and show that, in any stationary equilibrium, the rate of growth is constant. Finally, I pr ove that the rate of growth may be higher or lower than social welfare warrants.