Innovation and economic growth theory: a Schumpeterian legacy and agenda

Abstract

Introduction Over the last twenty-five years, the analysis of economic growth has re-surfaced as one of the most important issues in economic theory. Schumpeter's intellectual legacy, as embodied in his Theorie der wirtschaftlichen Entwickelung (1912), The Theory of Economic Development (1934), Business Cycles (1939) and Capitalism, Socialism and Democracy (1943) is an important point of reference for the new growth theory of the last quarter of twentieth century. Different elements of Schumpeter's works have inspired the modern analysts of economic growth. Those in the “evolutionary” tradition stress mostly Schumpeter's interpretation of economic growth as an out-of-equilibrium process. In the neoclassical tradition, the notion of “creative destruction” is the most influential Schumpeterian concept. The idea of long business cycles driven by major innovations is now shared between evolutionary and neoclassical economists alike. But Schumpeter's work on economic growth cannot easily be reduced to such conceptions with only limited depth and intellectual reach. For example, while the first two of the above-mentioned works certainly stress the out-of-equilibrium nature of economic growth, they also document Schumpeter's appreciation of a notion of equilibrium as a long-run attractor of the system. And while it is quite understandable that his “ Business Cycles ” would inspire modern economists working on “long waves” or “general-purpose technologies” Capitalism, Socialism and Democracy brings out more a tendency of ever-evolving history than one of “cyclical history.” The purpose of this chapter is to provide a broad survey of the Schumpeterian legacy in the modern field of economic growth, and to provide a critical discussion of its outlook for further progress. The survey, presented in Sections 2.1 and 2.2, is one of the main lines, rather than details of the various models and approaches found.