The economic long wave: Theory and evidence

Abstract

AbstractThe economic crisis of the 1980s has revived interest in the economic long wave or Kondratiev cycle. Since 1975 the System Dynamics National Model has been the vehicle for the development of a dynamic, endogenous, integrated theory of the economic long wave. This paper describes the integrated theory that has now emerged from extensive analysis of the full National Model and from simple models. Simulations of the model are presented to show the wide range of empirical evidence accounted for by the model, including many of the symptoms of the present economic crisis. In particular, the theory suggests that the long wave arises from the interaction of two fundamental facets of modern industrial economies. First, firms contain inherently oscillatory structures. Second, self‐reinforcing processes amplify the instability. The relative strengths of these mechanisms and the amplification of the long wave through their interactions are discussed, as are the linkages of the longwave theory of innovation, technological progress, social innovation, and political value change.