Quality ladders in the theory of growth

Gene M. Grossman

doi:10.2307/2298044

Quality ladders in the theory of growth

Gene M. Grossman

Princeton School of Public and International Affairs

Research output: Contribution to journal › Article › peer-review

1247 Scopus citations

Abstract

We develop a model of repeated product improvements in a continuum of sectors. Each product follows a stochastic progression up a quality ladder. Progress is not uniform across sectors, so an equilibrium distribution of qualities evolves over time. But the rate of aggregate growth is constant. The growth rate responds to profit incentives in the R&D sector. We explore the welfare properties of our model. Then we relate our approach to an alternative one that views product innovation as a process of generating an ever-expanding range of horizontally differentiated products. Finally, we apply the model to issues of resource accumulation and international trade.

Original language	English (US)
Pages (from-to)	43-61
Number of pages	19
Journal	Review of Economic Studies
Volume	58
Issue number	1
DOIs	https://doi.org/10.2307/2298044
State	Published - Jan 1991

All Science Journal Classification (ASJC) codes

Economics and Econometrics

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10.2307/2298044

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abstract = "We develop a model of repeated product improvements in a continuum of sectors. Each product follows a stochastic progression up a quality ladder. Progress is not uniform across sectors, so an equilibrium distribution of qualities evolves over time. But the rate of aggregate growth is constant. The growth rate responds to profit incentives in the R&D sector. We explore the welfare properties of our model. Then we relate our approach to an alternative one that views product innovation as a process of generating an ever-expanding range of horizontally differentiated products. Finally, we apply the model to issues of resource accumulation and international trade.",

author = "Grossman, {Gene M.}",

note = "Funding Information: Acknowledgement. Part of the work for this paper was completed while both authors were visiting the Institute for Advanced Studies at Hebrew University, and while Grossman was at the World Bank and Helpman at the International Monetary Fund. We thank these organizations plus the National Science Foundation and the Bank of Sweden Tercentenary Foundation for financial support. We are grateful to Peter Howitt, Torsten Persson, Paul Romer, Lars Svensson and an anonymous referee for their comments and suggestions.",

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AB - We develop a model of repeated product improvements in a continuum of sectors. Each product follows a stochastic progression up a quality ladder. Progress is not uniform across sectors, so an equilibrium distribution of qualities evolves over time. But the rate of aggregate growth is constant. The growth rate responds to profit incentives in the R&D sector. We explore the welfare properties of our model. Then we relate our approach to an alternative one that views product innovation as a process of generating an ever-expanding range of horizontally differentiated products. Finally, we apply the model to issues of resource accumulation and international trade.

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Quality ladders in the theory of growth

Abstract

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