Discussion Paper No.1612

Abstract :
In this study, we investigate the relationship between receptivity to novelty and innovation. Receptivity, an individual propensity to accept new goods, may a¤ect innovation at the aggregate level. Using World Values Survey data, in fact, we dis- cover that innovation is negatively correlated with the share of people who recognize themselves as highly receptive to novelty. Receptivity may not be always good for innovation. We propose a new dynamic general equilibrium model compatible with this fact. Using this model, we demonstrate that an economy where the consumer has too little or too much receptivity to novelty is likely to be caught in an under-development trap with no innovation. Only an economy with moderate receptivity can achieve innovation and thereby long-run growth. In the latter case, balanced growth and perpetual cycles are both possible; the cycles are caused because the introduction of new goods is costly and takes time. Other than receptivity, we also identify critical roles of population and knowledge accumulation in innovation.

Keywords : Openness/aversion to novelty; underdevelopment traps; endogenous growth; innovation cycles

JEL code: E32; O40; Z10