Analytical Political Economy

6 ENDOGENOUS TECHNICAL CHANGE IN ALTERNATIVE THEORIES OF GROWTH AND DISTRIBUTION

Daniele Tavani

Department of Economics Colorado State University

Luca Zamparelli

Department of Social and Economic Sciences Sapienza University of Rome

1. Introduction

The analysis of the role of technological change in the growth process is of central importance in classical political economy. In his Wealth of Nations, Adam Smith (1776[1981]) famously emphasized increasing returns and specialization as the main driver of economic progress, while in the third volume of Capital, Marx focused on the profit-driven motive to innovation in capitalist economies, and the corresponding conflictual nature of labor productivity growth (Marx, 1867). With the marginalist revolution and its main concern with the allocation of scarce resources over competing needs, technical progress fell out of fashion and was either assumed away or to take place exogenously, as it is the case in the (augmented) Solow (1956) model. Only in the early 1990s, a revived interest in the endogenous determinants of technical change enabled the introduction of insights by Schumpeter (1942) into dynamic neoclassical general equilibrium growth models (Romer, 1990; Grossman and Helpman, 1991; Aghion and Howitt, 1992). These theories have defined endogenous technical change as: (i) explained within the model rather than assumed to occur; (ii) costly to generate so that the problem of allocating resources to R&D becomes of crucial importance; ...