Rich transitional dynamics, physical capital, and technology intensity

Abstract

This paper develops a non-scale growth model with physical capital and two types of R&D under a lab-equipment specification, where both the intensive and extensive growth margins are fully endogenous. We study analytically the long-run equilibrium and transitional dynamics properties of the model, and establish meaningful sufficient conditions for saddle-path stability. We relate the different combinations of initial conditions of the dynamical system with the observation of monotonic versus non-monotonic transitional dynamics. Our model is able to predict monotonic, hump-shaped, and inverted hump-shaped trajectories, therefore encompassing the diverse convergence behaviour observed in the empirical data on modern growth experiences.