A Model of Economic Growth with Saturating Demand
This study presents a model of economic growth based on saturating demand, where the demand for a good has a certain maximum amount.
In this model, the economy grows not only by the improvement in production efficiency in each sector, but also by the migration of production factors (labor in this model) from demand-saturated sectors to the non-saturated sector.
It is assumed that the production of a brand-new good will begin after all the existing goods are demand-saturated. Hence, there are cycles where the production of a new good emerges followed by the demand saturation of that good.
The model then predicts that should the growth rate be stable and positive in the long run, the above-mentioned cycle must become shorter over time. If the length of cycles is constant over time, the growth rate eventually approaches zero because the number of goods produced grows.
Keywords: Economic Growth, Economic Development, Demand Saturation
JEL classification: O1, O4
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