Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth

We study capital accumulation and innovation as determinants of long-run growth by adding capital to our earlier model of creative destruction. No special functional forms are imposed on the aggregate production function. The equations describing perfect foresight equilibrium are identical to those of the augmented Ramsey-Cass-Koopmans model, except that the rate of technological change is a function of the stock of capital per effective worker. Contrary to previous models, a subsidy to capital accumulation will raise the long-run growth rate. The key assumption is that capital is used in R and D. Some evidence is presented on the capital intensity of R and D.