A multisectoral general equilibrium model of Schumpeterian growth and fluctuations

This paper builds a dynamic multisectoral general equilibrium model of Schumpeterian growth and fluctuations based on the endogenous introduction of new products. The set of technological opportunities determines the degree of product-quality upgrading and consists of breakthroughs and improvements the latter exhibiting diminishing returns. If the degree of diminishing returns to technological improvements is low, then there is no steady-state equilibrium but cycles of breakthroughs and improvements. We analyze two symmetric stable patterns of innovation which generate endogenous cycles and growth. There is a negative correlation between the duration of each cycle and the long-run growth trend.