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Feedback and endogenous economic growth (RV of 99/66/EPS/CMER)

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This paper focuses the role of feedback mechanisms in economic growth theory. A set of conditions is derived for perpetual growth at a constant rate, based on the feedback between experience-related cost reduction and price elasticity of demand. Constant growth requires continuous structural change as reflected by these two variables, and by the efficiency of physical resource (and energy) consumption/utilization. Technical progress and structural change can be interpreted in terms of these related variables. Perpetual growth is consitent with negative depreciation of capital (ie knowledge spillovers), increasing 'commoditization' of the composite output, and monotonically declining physical resource consumption (and decling waste output) but not consitent with an unchanging composite product. The simple single-sector neoclassical model of elasticities in the standard neoclassical production function is not applicable to a growing economy. Hence physical resource (energy) inputs can be much more productive than the static model suggests. On the other hand, there is no a priori reason not to use a production function model with econometrically determined variable elasticities.

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