Diffusion of Innovations under Imperfect Competition

Abstract

This chapter presents diffusion of innovations under imperfect competition. Detailed empirical studies of North American and Western European economies have produced considerable evidence that the speed of diffusion of innovations and factor reallocation affects both the level and the growth rate of output per capita. They have also shown that economic fluctuations have an adverse effect on the rate of growth of output per unit of input, with the obvious implication that aggregate demand management may influence technical progress. Yet, generation after generation of neoclassical growth theories have invariably come to the conclusion that, given the rate of unemployment, the level of output per capita is determined solely by the share of investment in the national product, and its growth rate solely by exogenous changes in technology. The chapter explains that a modified version of the technical progress function fits aggregate data better than a production function. A microeconomic justification for the existence of such a function is also offered.