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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce


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1558-3708
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Volume 19, Issue 2

Issues

Endogenous technical change, employment and distribution in the Goodwin model of the growth cycle

Daniele Tavani
  • Corresponding author
  • Department of Economics, Colorado State University, 1771 Campus Delivery, Fort Collins, Colorado 80523-1771, USA
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  • Other articles by this author:
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/ Luca Zamparelli
Published Online: 2014-07-04 | DOI: https://doi.org/10.1515/snde-2013-0117

Abstract

In this paper, we introduce endogenous technological change through R&D expenditure on labor-augmenting innovation in the cyclical growth model by Goodwin (Goodwin, R. 1967. “A Growth Cycle.” In Socialism, Capitalism, and Economic Growth, edited by Carl Feinstein, Cambridge, UK: Cambridge University Press.). Innovation is a costly, forward-looking process financed out of profits, and pursued by owners of capital stock (capitalists) in order to foster labor productivity and save on labor requirements. Our main findings are: (i) Goodwin-type distributive cycles arise even with dynamic optimization, but (ii) endogenous technical change has a dampening effect on economic fluctuations; (iii) steady state per capita growth, income distribution and employment rate are endogenous, and depend on the capitalists’ discount rate, the institutional variables regulating the labor market, and policy variables such as subsidies to R&D activity. Implementing the model numerically to match long run data for the US, we show that: (iv) an increase in the capitalists’ discount rate lowers per-capita growth, the employment rate and the labor share; (v) an increase in workers’ bargaining strength moderately raises the labor share and moderately decreases per-capita growth, while sharply reducing employment: quarterly US fluctuations (1948–2006) in employment and the labor share seem to support this result; (vi) a balanced budget increase in the R&D subsidy also fosters per-capita growth at the expenses of the labor share, even though the corresponding variations might be small.

Keywords: endogenous technical change; Goodwin model; income shares; employment.

JEL codes:: E32; O33

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About the article

Corresponding author: Daniele Tavani, Department of Economics, Colorado State University, 1771 Campus Delivery, Fort Collins, Colorado 80523-1771, USA, Phone: +1 970 491 6657, e-mail:


Published Online: 2014-07-04

Published in Print: 2015-04-01


Citation Information: Studies in Nonlinear Dynamics & Econometrics, Volume 19, Issue 2, Pages 209–216, ISSN (Online) 1558-3708, ISSN (Print) 1081-1826, DOI: https://doi.org/10.1515/snde-2013-0117.

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