Externalities, technological complementarities and sustained economic growth

Externalities as conventionally defined miss many of the spillovers that are both causes and consequences of the technological changes that underlie economic growth. We introduce a much wider concept called technological complementarities. New general purpose technologies (GPTs) rejuvenate the growth process by creating technological complementarities, which are adequately measured neither by total factor productivity (TFP) nor by externalities. There would be major gains from technological change even if the returns on capital invested in innovation never exceeded the returns on investing in existing technologies so that there were neither externalities nor positive changes in TFP (C) 2002 Elsevier Science B.V. All rights reserved.