Original scientific paper

Knowledge Accumulation and Chaotic Business Cycles

Orlando Gomes

Abstract

Within two-sector growth models, with physical goods and human capital produced under distinct technologies, a process of knowledge obsolescence/depreciation that is similar to the depreciation process of physical goods is generally considered. As a consequence, the long-term rate of per capita growth of the main economic aggregates is constant over time. This rate can be endogenously determined (in endogenous growth models in which production is subject to constant returns), or it can be the result of exogenous forces, like technological progress or population dynamics (in neoclassical growth theory in which decreasing marginal returns prevail). In this paper, we introduce a new assumption about the generation of knowledge, which involves the notion of saturation, i.e., introducing additional knowledge to generate more knowledge becomes counterproductive after a given point. This new assumption is explored in scenarios of neoclassical and endogenous growth, and it is able to justify endogenous fluctuations. Saturation in the creation of knowledge implies that human capital does not grow steadily over time. Instead, cycles of various periodicities are observable for different degrees of saturation. Complete a-periodicity (chaos) is also found for particular values of the saturation parameter. This behavior of the human capital variable spreads to the whole economy given that this input is used in the production of final goods and, thus, main economic gregates time paths (i.e., the time paths of physical capital, consumption, and output) also evolve following a cyclical pattern. With this argument, we intend to give support to the view of endogenous business cycles in the growth process, which is an alternative to the two mainstream views on business cycles: the RBC theory and the Keynesian interpretation.

Keywords

growth theory; endogenous business cycles; non-linear dynamics and chaos; knowledge saturation

Hrčak ID:

37086

URI

https://hrcak.srce.hr/37086

Publication date:

25.5.2009.

Article data in other languages: croatian

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