Entrepreneurship, Technical Progress and Economic Evolution: Measurement of Dynamic Competition in Taiwanese Industries

Abstract

In modern economies an increased utilisation of more and more advanced technologies as well as the more intensive use of physical and human capital can be observed. In this regard, the economic development of Taiwan is considered to be a complementary process of capital accumulation, innovation and learning. This economic evolution primarily takes place within the corporate sector. Advocates of Austrian economics like Schumpeter and Kirzner highlighted entrepreneurship to promote economic development. Simplified expressed, Schum-peter stressed fundamental (radical) innovations that set the economic system into motion by breaking down established, but static structures (creative destruction). In contrast, Kirzner emphasized the alertness of entrepreneurs to identify and to exploit coordination failures in the market process by realizing secondary innovations. The opportunities for both fundamental and secondary innovations vary from firm to firm; from industry to industry; from economy to economy; as well as from time to time. Consequently, the analysis of competitive market processes and entrepreneurship has to involve market and firm characteristics as well as their evolution in the course of time. In the following, the productivity performance of Taiwanese firms in several industries is analyzed to estimate their innovative behaviour. In this respect, an approach is introduced that allow for technological and economic aspects on a (global) industry-wide as well as a (local) firm-specific level. Hayek stressed competition as a method to discover procedures in order to solve economic problems (competition as a discovery procedure). The ability to discover new superior solutions to solve economic problems is consequently regarded as the major asset of the competitive market. A competitive environment must obviously provide an incentive for entrepreneurs to strive for innovations. Relative profitability is introduced as a measure of the degree of competition in an industry. Thus, competition has to assure that a relative innovative firm receives higher profits in relation to a less-innovative firm. Concerning the above-mentioned productivity analysis, the productivity performance is applied to estimate a firm's level of proficiency. The estimation results suggest cross-industrial variations regarding the innovative potential as well as the degree of competition. Substantial innovative advancements are particularly observable in industries characterised by relative unstable market conditions, which in turn are provoked by (fundamental) innovations themselves. The degree of competition, i.e. how much a relative innovative firm is rewarded by relative high profits, tends to be higher in relative unstable industries, too. Although the results are ambiguous, there is evidence that competition processes, and thus dynamic market forces, contributed considerably to the economic development of Taiwan by promoting technical progress.