Endogenous vs. semi-endogenous growth in a two-R&D-sector model

This paper contributes to the endogenous versus semi-endogenous growth debate by establishing that semi-endogenous growth is more general than endogenous growth in a two-R&D-sector growth model. It is demonstrated that endogenous growth requires two 'knife-edge' conditions of parameters. This finding (i) is in sharp contrast to recent two-R&D-sector models that show that long-run growth is endogenous, and (ii) resurrects the policy conclusion of semi-endogenous growth that government policy is not effective in raising the underlying growth rate of an economy. The driving force of these results is knowledge spillovers between two R&D activities, which are largely neglected in existing studies.