Reinterpreting the Jones critique: A time series approach to testing and understanding idea driven growth models with transitional dynamics

This paper uses the concept of cointegration and a theoretical framework that incorporates transitional dynamics to re-examine the evidence concerning empirical support for 1st generation, semi-endogenous growth, and Schumpeterian growth. The data for the post-war US economy show that the endogenous innovation approach can be broadly supported by the time series data but the limitations of time series data makes it difficult to use cointegration estimates to make sharp predictions of key model parameters that distinguish different versions of idea driven growth theory. Once capital is included in the knowledge growth model testing alternative growth frameworks can be viewed as a test of the number of cointegrating relationships between macroeconomic variables. Our results suggest a single cointegrating vector, lending some support to fully endogenous growth theories as opposed to the semi-endogenous approach.