Increasing Returns In A Model With Creative And Physical Capital: Does A Balanced Growth Path Exist?

In this note we study aspects of economic growth in a region that produces a final consumption good with creative and physical capital. This consumption good is manufactured with a production function that exhibits increasing returns to scale. Our analysis leads to three results. First, we compute the growth rate of creative capital in our regional economy. Second, we show that despite the presence of increasing returns, the regional economy under study converges to a balanced growth path (BGP). Finally, we compute the growth rates of physical capital and output on the BGP.