By incorporating endogenous innovation and wealth preference into the growth model, this paper aims to combine two important factors of economic development — “creative destruction,” as emphasized by Schumpeter (1912) and modelized by Aghion and Howitt (1992), and the “spirit of capitalism,” proposed by Weber (1905). Zou (1994) introduced this “spirit of capitalism” into the modern growth analysis by reinterpreting the Kurz (1968) model, wherein a preference on asset accumulation is introduced into the Ramsey model. By uniting these two factors, we obtain the result that this preference basically stimulates the long-term growth rate, and that it is effective when the economy has a too low innovation efficiency. However, the effect is small for an economy with a sufficiently high innovation efficiency.
Creative Destruction and Optimal Patent Life in a Variety-Expanding Growth Model