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We study the evolution of topics in economics and their geographical specialization by analyzing 13,233 papers from seven top journals between 1985 and 2012 and their forward citations. The share of U.S. publications declines from 75% to 64% with a corresponding increase of the European share from 12% to 24%. We use topic modeling and document the evolution of the discipline over 27 years. We estimate, with a quasi‐structural model, the citation lag distribution for 18 different topics and three large geographical areas. The modal citation lag is about 6.7 years in the entire sample and 4.8 years for citations from the top 100 journals. We quantify (1) the home bias effect in citations, (2) how it fades away over time, (3) the long lasting impact of U.S. publications vis‐à‐vis other geographical areas, and (4) the higher speed of diffusion and faster obsolescence in the United States. [ABSTRACT FROM AUTHOR]

This paper explores the impact of the political hierarchies of cities in China from different perspectives. First, we examine the economic disparities between prefectural cities and municipalities. Furthermore, this paper draws upon a quasi‐ experiment to analyze the impact of upgrading Chongqing to a municipality in 1997 using the synthetic control method. The city‐upgrading policy significantly increased Chongqing's gross domestic product (GDP) in the following 4 years. Finally, we find that the policy increased GDP in treated cities within 1200 km of Chongqing by about 10%–13% relative to the control cities. [ABSTRACT FROM AUTHOR]

How do capital controls and banking concentration affect economic development? This paper develops a general equilibrium model to study these important issues. To do so, we construct a framework with heterogeneous agents and imperfectly competitive financial intermediaries who help depositors manage liquidity risk. Importantly, higher levels of concentration raise the cost of domestic borrowing which increase the reliance on international capital markets. Finally, once the rate of money growth is sufficiently high, capital controls bind and the effects of monetary policy on capital formation are more pronounced. [ABSTRACT FROM AUTHOR]

This paper attempts to shed new empirical light on infrastructure's role in economic growth using a semiparametric smooth coefficient model to avoid specification problems in some existing studies and admit infrastructure‐induced nonlinearity and parameter heterogeneity. Estimated by a three‐step procedure that controls for endogeneity in both the regressors and the environmental variable (infrastructure), the model is applied to the empirical context of telecommunications infrastructure in a fast‐growing economy, China. The results reveal that telecommunications contribute to output through various sources, namely its neutral and non‐neutral impacts. The total/net effect is positive but largely decreases with telecommunications stocks. [ABSTRACT FROM AUTHOR]

This paper introduces a model in which greater inequality reduces growth in economies with low levels of financial development but that this effect is attenuated in economies with more developed systems. The model also predicts that individuals in economies with developed financial markets have a higher tolerance to inequality. Using a panel dataset that covers a large number of countries, this paper shows empirical evidence that is consistent with the main predictions of the model. Overall, this paper's major findings highlight that some of the pernicious effects of inequality can be attenuated by improving access to credit. [ABSTRACT FROM AUTHOR]

One potential consequence of rising top‐income concentration is borrowing by less‐affluent households attempting to maintain relative living standards. This paper evaluates the “keeping up with the Joneses” phenomenon, examining the responsiveness of payment‐to‐income ratios for different debt types across the income distribution to changes in income among affluent households. The analysis provides evidence for the responsiveness of debt to rising top incomes. Middle‐ and upper‐middle‐income households take on more housing‐related debt and have higher payments in places with higher top‐income levels. Among lower‐income households non‐mortgage borrowing and debt payments decline, consistent with restrictions in the supply of credit. (JEL D63, D14) [ABSTRACT FROM AUTHOR]

Motivated by the basic adage that man does not live by bread alone, we offer a theory of historical economic growth and population dynamics where human beings need food to survive, but enjoy other things, too. Our model imposes a Malthusian constraint on food, but introduces a second good to the analysis that affects living standards without affecting population growth. We show that technological change does a good job explaining historical consumption patterns and population dynamics, including the Neolithic Revolution, the Industrial Revolution, and the Great Divergence. Our theory stands in contrast to models that assume a single composite good and a Malthusian constraint. These models generate negligible growth prior to the Industrial Revolution. However, recent revisions to historical data show that historical living standards-though obviously much lower than today's-varied over time and space much more than previously thought. These revisions include updates to Maddison's dataset, which served as the basis for many papers taking long-run stagnation as a point of departure. This new evidence suggests that the assumption of long-run stagnation is problematic. Our model shows that when we give theoretical accounting of these new observations the Industrial Revolution is much less puzzling. ( JEL B10, I31, J1, N1, O30) [ABSTRACT FROM AUTHOR]

This paper examines the effect of high‐speed internet on firm's productivity and worker's wage in China. We exploit a national policy reform and devise a difference‐in‐difference strategy to address the endogeneity. We find that high‐speed internet significantly increases firm's productivity and worker's wage, and the estimate is larger for firms in industries with high skill intensity and for more educated workers. We provide suggestive evidence that the mechanism is likely from firm's increased use of skill‐biased technology and the flattened management organization. [ABSTRACT FROM AUTHOR]

In the mainstream real business cycle (RBC) model, labor can be viewed as temporary employment since the firm's demand for labor behaves directly in response to stochastic productivity shocks in each period. This paper provides a tractable way of analyzing fluctuations in permanent and temporary employment over the business cycle, as well as the underlying driving forces. This inclusion of heterogeneity helps reconcile the RBC model with the U.S. data given that temporary employees in general only account for a small proportion of total private‐sector employment (about 2%–3%). We draw an explicit division between permanent and temporary employment and resort to this separation to account for stylized facts that characterize a two‐tier labor market. In particular, with regard to the U.S. labor market, our benchmark model can well explain the motivating facts: (1) temporary employment is much more volatile than permanent employment, (2) the share of temporary employment (the ratio of temporary to aggregate employment) exhibits strong pro‐cyclicality, (3) permanent employment lags by two quarters on average, and (4) the correlation between temporary employment and output is stronger than that involving the permanent counterpart. The quantitative analysis suggests that our proposed channels explain the main facts well and the model further provides plausible reasoning for a firm's labor hoarding. [ABSTRACT FROM AUTHOR]

This paper deals with a classic development question: how can the process of economic development-transition from stagnation in a traditional technology to industrialization and prosperity with a modern technology-be accelerated? Lewis (1954) and Rostow (1956) argue that the pace of industrialization is limited by the rate of capital formation which in turn is limited by the savings rate of workers close to subsistence. We argue that access to capital goods in the world market can be quantitatively important in speeding up the transition. We develop a parsimonious open-economy model where traditional and modern technologies coexist (a dual economy in the sense of Lewis 1954). We show that a decline in the world price of capital goods in an open economy increases the rate of capital formation and speeds up the pace of industrialization relative to a closed economy that lacks access to cheaper capital goods. In the long run, the investment rate in the open economy is twice as high as in the closed economy and the per capita income is 23% higher. ( JEL O11, F43, O14) [ABSTRACT FROM AUTHOR]

This paper examines the relationship between immigrants' genetic diversity and economic development in the United States during the late nineteenth and the beginning of the twentieth centuries, a period commonly referred to as the age of mass migration from Europe to the New World. Our panel model estimates show that during this period, immigrants' genetic diversity is significantly positively correlated with measures of U.S. counties' economic development. There exists also a significant positive relationship between immigrants' genetic diversity in 1870 and contemporaneous measures of U.S. counties' average income. (JEL J11, O51, Z13) [ABSTRACT FROM AUTHOR]

This paper tests Jared Diamond's influential theory that an earlier transition from a hunter-gatherer society to agricultural production induces higher levels of technology adoption. Using a proxy for the geographic diffusion barriers of Neolithic technology and an index of biogeographic endowments to isolate the exogenous component of the timing of agricultural transition, the findings indicate that countries that experienced earlier transitions to agriculture were subsequently more capable of adopting new technologies in 1000 BC, 1 AD, and 1500 AD. These results lend strong support to Diamond's hypothesis. ( JEL O30, O40) [ABSTRACT FROM AUTHOR]

We document novel facts about the relationship between aggregate growth and firm dynamics using a large set of countries. We argue that firm employment patterns are not necessarily informative about cross‐country differences in aggregate growth because they are induced by changes in the productivity of a firm relative to others. In contrast, aggregate growth is linked to average firm‐level productivity growth and firm age. We formalize this intuition through a tractable model of endogenous aggregate growth and firm dynamics where firms realize positive returns to investment with some probability. We find that cross‐country disparities in this probability can account for two‐thirds of the variation in aggregate growth. [ABSTRACT FROM AUTHOR]

I use data on U.S. manufacturing establishments to study the spatial reallocation of resources that takes place within surviving firms as they open and close establishments in different regions. To motivate the empirical analysis, I extend existing models of industry dynamics to include production‐location decisions within firms. Consistent with the theory, the empirical results show that only a fraction of firms make the same product in multiple regions, that multiregional firms are larger and more productive on average compared to single‐region firms, and that “region switching” is pervasive among multiregional firms and correlated with changes in firm and firm‐region characteristics. (JEL L2, F12, F23) [ABSTRACT FROM AUTHOR]

At odds with the large literature devoted to the fiscal discipline effects of fiscal rules, only few contributions investigate their impact on public spending. Estimations based on the entropy balancing method reveal the following causal effects: fiscal rules significantly reduce total public spending and public consumption, leave public investment mostly unaffected, and increase the public investment‐to‐public consumption ratio. Moreover, the type of fiscal rule and countries' level of economic development influence the way fiscal rules affect public spending. Lastly, fiscal rules' features are a major driving force of the way governments change public spending in the presence of fiscal rules. [ABSTRACT FROM AUTHOR]

When considering how to allocate scarce resources for the development of public infrastructure, many countries have a tendency to neglect maintenance in favor of new infrastructure investment projects. We examine the role of maintenance expenditures on output and on the distribution of wealth in a heterogeneous agents model. In our model, maintenance affects the quality of existing infrastructure and thus the flow of services derived from it. Furthermore, maintenance expenditures also affect the depreciation rates of both public infrastructure and private capital. We calibrate our model to Mexico and consider several policies that increase the flow of resources to infrastructure and find that a policy that allocates all additional resources to new investment is dominated by policies that allocate at least some of the additional resources to maintenance. Specifically, focusing all additional resources on maintenance is shown to generate the largest reduction in inequality, while a more balanced policy that increases both investment and maintenance maximizes output growth. ( JEL E00, E62, H54) [ABSTRACT FROM AUTHOR]

The theoretical literature on fiscal federalism has identified several channels through which government decentralization could affect economic growth. Much of the literature focuses on the efficiency aspects of a decentralized provision of public services, but decentralization may also increase growth by raising the ability of the political system to innovate and carry out reforms. In contrast, some authors argue that decentralization increases corruption and government inefficiency, and thus may diminish growth. Given this theoretical ambiguity, several studies have attempted to identify the effect of decentralization on economic growth empirically over the last two decades. We review and conduct a meta-analysis of this empirical literature. Based on our analysis, we point out open questions and discuss possible ways to answer them. ( JEL H77, O43, C52) [ABSTRACT FROM AUTHOR]

We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent‐based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information, coordination hurdles, and structural breaks. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. Our results suggest that fast and frugal robust heuristics may not be a second‐best option but rather "rational" responses in complex and changing macroeconomic environments. [ABSTRACT FROM AUTHOR]

We show that the negative effect of household credit growth on subsequent economic growth documented in the recent literature is not the same across countries. The effect is stronger in countries with weak institutions where the fraction of consumer credit in total household credit is greater. That is an important nuance as consumer credit is a sizable part of household credit in many emerging markets and its rapid buildup should be observed with the same caution as a rapid buildup in housing credit. [ABSTRACT FROM AUTHOR]

What is the relationship between the economy's long‐run growth rate, its capital‐income ratio, and its factor income distribution? A satisfactory answer requires an endogenous growth and savings rate. We scrutinize Piketty's (2014) theory in a richly parameterized variant of Romer's (1990) seminal model with and without population growth. The economy's growth and savings rate are exogenous in Piketty's theory and endogenous in Romer's. In contrast to Piketty's Second Fundamental Law of Capitalism a smaller growth rate may be associated with a smaller capital‐income ratio. Moreover, it may go together with a greater or a smaller capital share. [ABSTRACT FROM AUTHOR]

We analyze the relationship between professional sports events and concerts held in LA's Staples Center and nearby hotel performance. Government‐led economic redevelopment projects often envision sports facilities as tourist magnets. Little evidence exists supporting links between sporting events and hotel demand. An empirical analysis exploiting exogenous daily variation in the timing of games and concerts from 2002 to 2017 shows a small positive impact on room revenue at hotels within one mile and larger room revenue decrease at hotels located one to 4 miles away. The overall impact on hotel room revenue and rooms rented was not positive. Nearby hotel room rates increased during NBA and NHL work stoppages. The city granted four new hotels built very near the arena exemptions from occupancy taxes for 20–25 years; these exemptions reduced hotel tax revenues by a minimum of $4.5 million annually and may not have been needed to spur new hotel development. [ABSTRACT FROM AUTHOR]

Political budget cycles (PBCs) have been well documented in the literature, albeit not for all circumstances. Similarly, there is clear evidence on the positive effect of economic growth on electoral success. However, no work has been done on the impact of economic growth on the magnitude of PBCs. The theoretical model argues that a government has an incentive to increase fiscal manipulations when a recession is expected to hit and curtail reelection chances; this amounts to countercyclical policy for opportunistic rather than Keynesian motives. Very robust evidence for this behavior is found in Portuguese municipalities; in election years, budget deficits go up even more and significantly so, when a recession is expected. [ABSTRACT FROM AUTHOR]

Economic growth theory distinguishes between reproducible and nonreproducible factors of production. In traditional growth models based on factor‐augmenting technical change, perpetual economic growth requires that each essential nonreproducible factor, such as labor, be augmented by a reproducible factor, such as human capital. Recent models of factor‐eliminating technical change deliver perpetual growth by eliminating the nonreproducible factors. Heretofore, the literature has kept factor augmentation and factor elimination separate. We analyze a model with both. The model generalizes the traditional factor augmentation approach by relaxing the usual restriction that factor elimination is absent. We obtain the striking result that factor‐augmenting technical change is a misspecification when factor‐eliminating technical change is present. The result raises several questions about technical change and endogenous growth. [ABSTRACT FROM AUTHOR]

We introduce borrowing constraints into a two‐sector Schumpeterian growth model and examine the impact of asset price bubbles on innovation. In this environment, rational bubbles arise when the intermediate good producing R&D sector is faced with adverse productivity shocks. Importantly, these bubbles help alleviate credit constraints and facilitate innovation in the stagnant economy. On the policy front, we make a case for debt financed credit to the R&D sector. Further, we establish that a constant credit growth rule (akin to the Friedman rule) outperforms the often prescribed counter‐cyclical "lean against the wind" credit policy. [ABSTRACT FROM AUTHOR]

We investigate the relationship between economic growth and top income inequality under the influence of human and physical capital accumulation, using an annual panel of U.S. state-level data. Our analysis is based upon the 'unified' framework offered by Galor and Moav (2004) while the empirics account for cross-section dependence, parameter heterogeneity, and endogeneity, in nonstationary series. We conclude that changes in inequality do not influence growth, neither in the short run nor in the long run in the United States as a whole in the 1929-2013 period. Our findings are robust to the inclusion of overall income inequality measures. These findings provide support for the theoretical prediction of the unified theory of inequality and growth, according to which the growth effect of inequality becomes insignificant in the latest stages of economic development that the United States experiences during our period of investigation. Therefore, future policies aiming at moderating the concentration at the upper end of income distribution are not likely to have adverse growth consequences in developed countries such as the United States. ( JEL I21, O47, C23) [ABSTRACT FROM AUTHOR]

We employ a discrete-time parametric duration model on a group of 121 countries over the period 1970-2011 and find that the probability of the end of financial markets' shutdown and reaccess falls as these events become longer. We also show that: (1) shutdown episodes are longer when economic prospects are poor and the degree of financial openness falls, the chief executive has been in office for long periods, and the country has a default history and (2) spells of reaccess tend to be longer when economic growth improves and financial openness increases, there are neither government crises nor government instability, and the country did not default in the past. ( JEL C41, G15) [ABSTRACT FROM AUTHOR]

This study examines the cultural-transmission effects of compensatory-discrimination affirmative action policies on work-ethic preference dynamics for a population in a caste-based segregated economy in which some high-paid jobs are reserved for historically disadvantaged lower-caste individuals. Cultural attitudes toward preferences for work-loving and leisure-loving traits evolve endogenously. The compensatory-discrimination policies affect differently the preference dynamics for insiders (entitled to employment quota) and outsiders (not entitled to employment quota). Efficient and inefficient equilibria are possible, with larger or smaller proportions of individuals with a work ethic among the insider and outsider populations. The model shows that the commonly conceived conclusion that a job reservation policy benefits a disadvantaged group at the cost of efficiency and economic growth is not a necessary outcome. ( JEL A12, C62, J71) [ABSTRACT FROM AUTHOR]

Investment in network infrastructure is crucial for economic growth. This article studies the impact of the presence of independent regulatory agencies ( IRAs) on the investment of European regulated firms. We account for measurement error in formal independence of IRAs by exploiting cross-country heterogeneity in the quality of political institutions. Results show that regulatory independence increases firms' investment rate by around 1.2%-3.3%. The positive effect survives when we control for social capital accumulation, investor protection, and market liberalization. However, the effect of IRAs is not immune to politics, as we find that political interference in regulatory functions persists in the European Union and is detrimental to firm investment. ( JEL D78, L50, D92, H1) [ABSTRACT FROM AUTHOR]

When technological change affects the prices of tradeable assets, innovators can obtain speculative profits by exploiting their inside information as to the occurrence of innovations. We propose a tractable model of endogenous growth that formalizes this argument, originally due to Hirshleifer (1971). We then use the model to assess two claims advanced by Hirshleifer, namely, that speculative profits can generate excessive investment in R&D when they add to monopoly rents guaranteed by patent protection, or else even in a perfectly competitive economy. The analysis confirms the first claim, but casts doubts on the second one. ( JEL O30, O40) [ABSTRACT FROM AUTHOR]

This article examines the effects of public spending reallocations on economic growth. Assembling a disaggregated public spending dataset of 83 countries over the 1970-2011 period, we show that spending reallocations toward education, from health and social protection, have significant growth-promoting effects across a wide range of countries' income levels. However, income heterogeneity matters, particularly when reallocations involve infrastructure spending. Specifically, a reallocation from this spending to education also promotes growth, albeit primarily when a country's income level is low. This occurs because the effects of infrastructure spending are particularly weak in low-income countries, possibly due to the low quality of governance. ( JEL O43, H50, O11) [ABSTRACT FROM AUTHOR]

The standard view suggests that removing barriers to entry and improving judicial enforcement reduces informality and boosts investment and growth. However, a general equilibrium approach shows that this conclusion may hold to a lesser extent in countries with a constrained supply of funds because of, for example, a more concentrated banking sector or lower financial openness. When the formal sector grows larger in those countries, more entrepreneurs become creditworthy, but the higher pressure on the credit market limits further capital accumulation. We show empirical evidence consistent with these predictions. ( JEL O16, O43, E26) [ABSTRACT FROM AUTHOR]

We estimate the causal link from income inequality to generalized trust by reconsidering the country-level evidence on this issue. First, we exploit the panel dimension of the data, thus controlling for any country unobservable time-invariant variables, and find a negative relationship between the two variables that holds only for developed countries. Second, we focus on these advanced economies and provide instrumental variable estimates using the predicted exposure to technological change as an exogenous driver of inequality. According to our findings, the negative causal effect of inequality on trust is even larger than that coming from ordinary least squares estimation. We also provide new insights on the effects of different dimensions of inequality, exploiting measures of both static inequality-such as the Gini index and top income shares-and dynamic inequality-proxied by intergenerational income mobility. ( JEL D31, O15, Z13) [ABSTRACT FROM AUTHOR]

This article examines the impact of corruption on the self-selection of firms into domestic and export markets. A heterogeneous firm model predicts that corruption decreases the probability that a firm only sells domestically, increases the probability that a firm exports indirectly through an intermediary, and decreases the probability that a firm exports directly. The propositions of the model are tested using a comprehensive dataset of over 23,000 firms in 80 developing countries. The results confirm both the self-selection of firms according to their productivity and the anticipated impact of corruption. This indicates that in developing countries where corruption is especially severe, intermediaries provide a crucial link to global markets. ( JEL F1, O1) [ABSTRACT FROM AUTHOR]

Data from the dot-com boom-bust episode suggest that growth opportunities played an important role in explaining firms' financing strategy during this understudied episode. The low leverage of this sector was mainly driven by high growth firms which increased their leverage following the crash despite suffering a much larger fall in their market value. We present a parsimonious dynamic firm financing model where growth opportunities alone can generate the heterogeneous patterns in the financing and performance between high and low growth information technology firms prior to and following the market crash. The calibrated model also sheds light on the role played by monetary policy during that episode. ( JEL G32, E22, E5) [ABSTRACT FROM AUTHOR]

This study identifies the determinants of growth for male and female business ownership in a subset of U.S. counties. The results indicate that there are important characteristic and behavioral differences between the male and female populations in each county that affect regional changes in business ownership for each gender. In particular, the education level of males and females as well as the local family structure impact the propensity for firms owned by each gender differently. A Blinder-Oaxaca type decomposition, a novel approach in the context of regional outcomes, demonstrates that although the effect of characteristic differences is larger, the behavioral differences are key to narrowing the gender disparity in business ownership. ( JEL L26, R2, R3) [ABSTRACT FROM AUTHOR]

Standard theoretical models predict that higher inflation expectations generate greater current consumer spending at the zero lower bound of interest rates. However, recent empirical studies using U.S. micro data find negative results for this relationship. We use micro data for Japan, which has experienced low interest rates for a prolonged period, to estimate ordered probit models with a variety of controls. We find robust evidence supporting the prediction of standard models: survey respondents with higher expected inflation tend to indicate that their household has increased real spending compared with 1 year ago but will decrease it in the future. This relationship appears to be stronger for asset holders and older people. ( JEL E20, E21, E30, E31, E50, E52) [ABSTRACT FROM AUTHOR]

Has the progress of output convergence changed within the United States? This article examines the output convergence among U.S. states for the last five decades by making several improvements over the extant literature. By applying a battery of convergence tests designed to capture nonlinear transitional dynamics to real output per worker data (i.e., nominal values deflated by state-level price), we find that output convergence has not been a feature of the continental United States since the 1970s. Instead, output convergence has proceeded among four subgroups within which constituent states have certain characteristics in common. Our regression analysis suggests that state-level characteristics related to technology and human capital play a crucial role in accounting for the formation and composition of convergence clubs, in agreement with the recent theoretical models of growth and development (e.g., Aghion et al. 2009; Gennaioli et al. 2013b). The level of technology, proxied by patents, turns out to be a consistently significant determinant even after controlling for endogeneity, suggesting that frictions in the diffusion of technology and human capital may have led to clustering of states with different levels of productivity. Our results therefore cast doubt on the common view that diffusion of knowledge and technology across state borders is frictionless. ( JEL O47, O51) [ABSTRACT FROM AUTHOR]

Increased turnover among legislators can make them short-sighted, affecting fiscal policy and economic growth. We exploit the exogenous variation in legislative turnover induced by term limit laws and by redistricting in the 50 U.S. states, finding that increased turnover increases capital spending by state governments, which may be designed to constrain future governments. The changes may cause long-run distortions in the economy, reducing long-term economic growth. ( JEL H72, H73, H76) [ABSTRACT FROM AUTHOR]

Value added taxes (VATs) have become an important source of government funding in past decades, but little empirical work has been carried out on their macroeconomic impacts. As the decision to implement a VAT is endogenous, regression methods analyzing the impact of the policy choice will yield biased estimates. To solve this problem, I first model the VAT adoption decision for 192 countries using survival analysis. I then match adopters to non-adopters using propensity score matching. I find that VAT adoption is associated with an increase in growth and investment as well as lower inflation and government spending as a share of GDP. ( JEL H20, H21) [ABSTRACT FROM AUTHOR]

We provide a test of the impact of voters' political ideology on economic growth and of the role of preferences for government size as a transmission channel. We focus on France from the beginning of its stable democratic experience in 1871. A move of voters' ideology to the right increases economic growth over the total observation period. However, the growth effect of ideology is mediated by voters' preferences for government size only during the post-World War II period. For reverse causality concerns, we use the political ideology of other historical democracies as an instrument variable for France's ideology. ( JEL E6, O43, H11) [ABSTRACT FROM AUTHOR]

Over the past decades, private R&D spending in the United States and other developed countries has been growing faster than gross domestic product. At the same time, the growth rates of per-capita and aggregate output have been rather stable, possibly declining slightly. This article proposes a growth model that can account for the observed phenomenon by explicitly describing competition among technological leaders and followers in individual markets in a way that is consistent with existing studies on firms' motivation to invest in R&D. The model shows the possibility that the unsustainable trend of rising R&D intensity persists for a very long time. ( JEL O3, O4, L1) [ABSTRACT FROM AUTHOR]