Information Technologies, Economic Growth and Productivity Shocks

Abstract

This paper develops a multi-sectoral endogenous growth model in order to reproduce some of the essential characteristics of the so-called ÒICT RevolutionÓ. The economy consists of four sectors and the most important features are the embodied nature of technological progress, the horizontal differentiation and the Òlab-equipmentÓ specification of R&D. After the description of the different sectors, the equilibrium conditions are obtained, the balanced growth path is characterized analytically and the corresponding steady state system is derived. From this system some analytical results can be obtained, in particular it turns out that shocks on the productivity of the different sectors have permanent effects on long-term growth (contrary to the version of the model without the Òlab-equipmentÓ assumption, where only a shock on the productivity of the R&D sector influences long-term growth). These results are confirmed, in the last part of the paper, by the numerical simulation of the model, that allows also to analyse the short-run response of the system to the different shocks that can hit the economy and to study the robustness of the model.Information Technology, Endogenous Growth