In this article it is developed a growth model based on endogenous technological progress, where growth is induced by continuous improvements in the quality of each differentiated product. The innovation, the "engine" of growth, has human capital as its critical fuel. Based on Grossman & Helpman's (1991a, 1991b) models but differently considering an index of consumption constituted by both differentiated goods and a homogenous good, the model proposed highlights the crucial influence of demand on economic growth, an issue neglected by endogenous growth literature. From the modeling effort it results that less sophisticated consumers, with reduced preferences by quality differentiated products generate, for sure, insufficient incentives to research, whereas highly sophisticated consumers might generate excessive incentives. Thus, in the case the share of differentiated products is correlated with the country's development level, less developed countries tend to present relatively low innovation rates, contrasting with more developed countries, where these rates might be (socially) excessive.
growth models; Research & Development; human capital
