Abstract
We show that world trade network datasets contain empirical evidence that the dynamics of innovation in the world economy indeed follows the concept of creative destruction, as proposed by J.A. Schumpeter more than half a century ago. National economies can be viewed as complex, evolving systems, driven by a stream of appearance and disappearance of goods and services. Products appear in bursts of creative cascades. We find that products systematically tend to co-appear, and that product appearances lead to massive disappearance events of existing products in the following years. The opposite–disappearances followed by periods of appearances–is not observed. This is an empirical validation of the dominance of cascading competitive replacement events on the scale of national economies, i.e., creative destruction. We find a tendency that more complex products drive out less complex ones, i.e., progress has a direction. Finally we show that the growth trajectory of a country’s product output diversity can be understood by a recently proposed evolutionary model of Schumpeterian economic dynamics.
Highlights
IntroductionSchumpeter held that the key mechanism of economic development is radical innovation [1,2]
In particular our analysis reveals that (i) products appear cluster-wise in creative bursts which (ii) increases the chance for other, already existing products to be pushed from the market and (iii) the emerging products are typically associated with higher income and a higher level of economic complexity
The effect of shifting production towards higher complexity is strongest in the developing countries of Latin America, Eastern Europe and East Asia and Pacific and barely visible in the least developed countries or Europe and North America
Summary
Schumpeter held that the key mechanism of economic development is radical innovation [1,2] In his view the Walrasian economic equilibrium is continuously disturbed by actions of entrepreneurs, introducing novel goods and services in the market. These innovations may replace existing goods and services and thereby impact related industries. Current colloquial examples of how once market-dominating companies lose their position due to creative destruction include instant photography or printed newspapers in light of the age of digitalization Is this only the driving force behind major shifts in industrial production and long-term business cycles, or does it condition economic change on much shorter time-scales?
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