Growing through cycles in an infinitely lived agent economy

This paper extends the analysis or K. Matsuyama (Econometrica 67 (1999), 33 5-347) to the case of an infinitely lived representative agent economy, The economy grows endogenously through endogenous fluctuations, perpetually mo ving back and forth between two phases. In one phase, there is no innovatio n, the market structure is competitive, and the economy grows solely by cap ital accumulation. In the other phase, new goods are introduced and the mar ket structure is monopolistic. In the long run, both investment and innovat ion grow at the same rate, but the economy alternates between the periods o f high investment and the periods of higher innovation. (C) 2001 Academic P ress.