Innovation diffusion, general purpose technologies and economic growth

This paper investigates the mechanics through which novel technological principles are developed and diffused throughout an economy consisting of a technologically heterogeneous ensemble of firms. In this model entrepreneurs invest in the discovery and in the diffusion of a technological principle. We argue that if the technological distance between goods is sufficiently large, then the economy is trapped in a no-growth equilibrium where innovations remain isolated events, while if it is sufficiently short, then innovations eventually percolate throughout the whole economy, leading to the emergence of general purpose technologies and sustained long run growth.