Growth cycles with technology shifts and externalities

This paper investigates a growth model with technological cycles induced by shifts in the general technology. The key feature is that technological de velopment occurs partly by discrete replacements of obsolete technologies, partly by continuous innovation of components for the newest General Purpos e Technology (CPT). Many recent papers have focused on this concept in atte mpts to explicitly model this type of growth process. In this paper we allo w for positive technological externalities in the process of component inno vation and do not assume that all old components become worthless when a ne w GPT arrives. Closed form analytical solutions for the dynamics can then b e obtained and the timing of technology shifts endogenised. Comparative dyn amics of the model are simple and intuitive when the economy is on a benchm ark path with stationary cycles. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classificntion: O41.