Innovation and Growth in the Grossman-Helpman's 1991 Model with Increasing Returns.

Abstract

In this paper I consider the 1991 Grossman-Helpman model which analyses the role of innovation on growth. The model assumes constant returns to scale. I intend to show what happen in this model if I assume strong increasing returns. In particular, under the assumption of increasing returns of capital but leaving all other main features of the Grossman-Helpman model unchanged, I analyse the influence of the rate of innovation on three variables: the rate of growth of final output, the level of prices of final output and the rate of investment.Grossman-Helpman's 1991 Model, growth, innovation, increasing returns to scale