Endogenous growth - A dynamic technology augmentation of the Solow model

TL;DR

This paper develops a dynamic endogenous growth model that explicitly incorporates technological innovation as a variable influenced by resource allocation, challenging the traditional exogenous assumption of constant technology in the Solow model.

Contribution

It introduces a novel approach to model technological progress endogenously based on resource allocation, providing a more realistic depiction of innovation's role in economic growth.

Findings

Model aligns with sample and real-world data

Highlights the impact of resource allocation on technological growth

Identifies areas for further model refinement

Abstract

In this paper, I endeavour to construct a new model, by extending the classic exogenous economic growth model by including a measurement which tries to explain and quantify the size of technological innovation ( A ) endogenously. I do not agree technology is a "constant" exogenous variable, because it is humans who create all technological innovations, and it depends on how much human and physical capital is allocated for its research. I inspect several possible approaches to do this, and then I test my model both against sample and real world evidence data. I call this method "dynamic" because it tries to model the details in resource allocations between research, labor and capital, by affecting each other interactively. In the end, I point out which is the new residual and the parts of the economic growth model which can be further improved.