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Duke Economics Working Paper #96-28

Technological Change and Population Growth

Pietro F. Peretto

Abstract

What is the relationship between the rate of population growth and the rate of technological change? To answer this question, I discuss a model where increasing returns generate long-run growth but where the scale effect is absent. More precisely, the model predicts that steady-state productivity growth does not depend on population size because an increase in population size leads to entry. The resulting crowding-in effect generates dispersion of R&D resources across firms and offsets the positive effect of the scale of the economy on the returns to R&D. Changes in population size have only transitory effects on productivity growth. This desirable property allows me to introduce population growth in the model and study the effects of demographic shocks. The predicted patterns of growth, entry and change in industrial structure match the experience of several industrialized countries. In addition, they match several of the empirical observations cited as evidence against standard models of endogenous technological change.

Keywords: R&D, Technological Change, Population Growth, Entry, Market Structure, Scale Effects

JEL: E10, L16, O31, O40

Published in Journal of Economic Growth, Vol. 3, No. 4, December 1998, pp. 283-311.