Technological Revolution, Phased Endogenous Growth, and Market Failure

We establish a basic framework for incorporating technological revolution into the endogenous growth model. With two types of technological progress, incremental progress and technological revolution, the equilibrium shows a Cyclic Growth Path (CGP) with both long-term endogenous growth and cyclical fluctuations. The market equilibrium leads to over-consumption, insufficient investment, and lack of “rush-effect” in comparison to the optimal growth path, which results in the latter occurrence of technological revolution. These findings have important policy implications, meaning that to promote technological revolutions, relying solely on the market is insufficient and that this problem needs to be corrected through appropriate policies.