Demand-led growth with endogenous innovation

This paper contributes to the recent macro-dynamics literature on demand-led growth, drawing upon the seminal idea that the implications of Harrodian instability may be tamed by a source of autonomous expenditure in the economy. Contrary to the other contributions in this literature, real autonomous expenditure is not growing at an exogenously given rate, and partly consists of a flow of profit-seeking R&D and innovation expenditures raising labour productivity through time. If the state of distribution, hence the wage share, is exogenously fixed and constant, the model gives rise to dynamics in a two dimensional state space, that may converge to, or give rise to a limit cycle around, an endogenous growth path. An exogenous rise of the profit share exerts negative effects on long-run growth and employment, showing that growth is wage led.