The last chapter modeled technological progress as an increase in the number of types of products, N. In this chapter, we allow for improvements in the quality or productivity of each type. This approach has come to be known as the Schumpeterian approach to endogenous growth. We can think of increases in N as basic innovations that amount to dramatically new kinds of goods or methods of production. In contrast, increases in the quality of the existing products involve a continuing series of improvements and refinements of goods and techniques.
Robert J. Barro, Xavier Sala-i-Martin, Economic growth 2nd ed. (2004), Ch. 7 : Technological Change: Schumpeterian Models of Quality Ladders