The Dynamic Effects of General Purpose Technologies on Schumpeterian Growth

General purpose technologies (GPTs) are drastic innovations, such as electrification, the transistor, and the Internet, that are characterized by the pervasiveness in use, innovational complementarities, and technological dynamism. The transitional and long-run dynamic effects of a GPT are analyzed within a quality-ladders model of scale-invariant Schumpeterian growth. The diffusion path of a GPT across a continuum of industries is governed by S-curve dynamics. The initial balanced growth equilibrium exhibits endogenous growth and no industry has adopted the new GPT. The final steady-state equilibrium, in which all industries have adopted the new GPT, exhibits a higher steady-state Schumpeterian growth and a higher per capita R&D. The model generates a unique, stable saddle-path. During the transition path, the measure of industries that adopt the new GPT increases, consumption per capita falls, and the interest rate increases. The growth rate of the stock market depends negatively on the rate of GPT diffusion process and the magnitude of the GPT-ridden R&D productivity gains, and positively on the rate of population growth. It also follows a U-shaped path during the diffusion process of the new GPT. Finally, the model generates transitional growth cycles of per-capita GNP.