It has been argued that concave models exhibit less "endogeneity of growth" than
models with increasing returns to scale. Here we study a simple model of factor saving
technological improvement in a concave framework. Capital can be used either to reproduce
itself, or, at some additional cost, to produce a higher quality of capital, which
requires less labor input. If better quality capital can be produced quickly, we
get a model of exogenous balanced growth as a special case of ours. If, however,
better quality capital can be produced slowly, we get a model of "endogenous growth"
in which the growth rate of the economy and the rate of adoption of new technologies
is determined by preferences, technology and initial conditions. Moreover, in the
latter case, the process of growth is necessarily uneven, exhibiting a natural cycle
with alternating periods of high and slow growth. Growth paths and technological
innovations also exhibit dependence upon initial conditions. The model provides a
step toward a theory of endogenous innovation under conditions of perfect competition.