Externalities, Productivity and Sustained Growth

This paper shows that the existence of endogenous growth, in the closed-form solution, in a single sector economy with a convex technology in an overlapping generations (OLG) framework, which attempts to fill the current gap in endogenous growth theory. It finds there is an unbounded growth when trade, in the form of knowledge spillover, affects labor productivity through the formation of human capital with self-education that is not an independent sector but builds the human capital here. This conclusion holds even though there is the “limited income” expressed as the “non-increasing wage/investment ratio” for each generation. Moreover, it shows the convergence of growth rates for each country, which is unique and constant, while the growth rate per capita negatively relates with each country's population growth rate. Also, there is no “poverty trap” with the introduction of externalities that is different from existing literature.