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Endogenous Growth and Entropy

Author

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  • Tiago Neves Sequeira

    (Universidade da Beira Interior and CEFAGE-UBI)

  • Pedro Mazeda Gil

    (cef.up, FEP, Universidade do Porto)

  • Óscar Afonso

    (cef.up and FEP, Universidade do Porto, and CEFAGE-UBI)

Abstract

This paper offers novel insights regarding the role of complexity in both the transitional and the long-run dynamics of the economy. We devise an endogenous growth model using the concept of entropy as a state-dependent complexity effect. This allows us to gradually diminish scale effects as the economy develops along the transitional dynamics, which conciliates evidence on the existence of scale effects in history with evidence of no or reduced scale effects in today’s economies. We show that empirical evidence supports entropy as a “first principle” operator of the complexity effect. The model features endogenous growth, with null or small (positive or negative) scale effects, or stagnation, in the long run. These different long-run possibilities have also policy implications. Then, we show that the model can replicate well the take-off after the industrial revolution and the productivity slowdown in the second half of the XXth century. Future scenarios based on in-sample calibration are discussed, and may help to explain (part of) the growth crises affecting the current generation.

Suggested Citation

  • Tiago Neves Sequeira & Pedro Mazeda Gil & Óscar Afonso, 2018. "Endogenous Growth and Entropy," CEF.UP Working Papers 1804, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:1804
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    More about this item

    Keywords

    endogenous economic growth; complexity effects; entropy.;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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