Self-fulfilling expectations and economic growth: A model of technology adoption and industrialization

In this work we construct a model that integrates both industrialization and endogenous growth. We feature the role of technology adoption in sustaining growth and achieving industrialization. Our economy contains multiple equilibria for an initial history. We found that only self-fulfilling expectations matter in selecting an equilibrium, whereas history plays no role. Our equilibrium is shown to involve a threshold property: when the economy starts above this threshold, the economy is able to sustain growth; otherwise, it is not. Both the rate of economic growth and the process of industrialization increase gradually and approach an upper bound.