Demand saturation-creation and economic growth

In the standard literature, the fundamental factor restraining economic growth is diminishing returns to capital in production or R&D technology. This paper presents a model in which the factor restraining growth is saturation of demand for individual consumption good. The economy sustains growth through the introduction of new products/industries. The new products/industries create high growth of demand. By so doing, they elicit capital accumulation, and ultimately sustain economic growth. The model demonstrates the importance of demand-creating innovations which are different from the standard measure of technical progress, namely total factor productivity. (C) 2002 Elsevier Science B.V. All rights reserved.