WP Global Economy 2024.09.24
This is a working paper.
To explain the observed stability in real GDP growth, endogenous growth theories typically need a knife-edge degree of externality, which is not supported by microlevel observations.
We develop a model where a constant number of new goods are introduced per unit of time and focus on the movement of prices and quantities after introduction.
In this environment, positive real GDP growth, as measured by SNA statistics, does not necessarily mean exponential growth in the quantity, quality, or variety of final outputs.
We derive the conditions under which measured growth can be sustained, which are less restrictive than typical knife-edge assumptions.