Abstract
This paper shows that autocatalytic trade cycles can be a positive feedback system for innovation and thus for economic growth. Using United Nations data, a trade network is proposed and a set of variables that represent the participation of countries in autocatalytic trade cycles is constructed. A clear relationship between these variables and economic growth is found since more innovation is produced in countries that are part of trade cycles. However, the relationship changes with autocatalytic trade cycle sizes, categories of goods and time scales. Moreover, autocatalytic trade cycles also have a positive effect for the trade flows involved, although this effect differs significantly depending on the size of the cycles. This new approach based on autocatalytic trade cycles emphasizes the benefits that countries can extract from trade cycles and points out the need of policies that foster these benefits. These conclusions strengthen existing literature, and also add new insights to innovation policy and the pursuit of economic prosperity.
Highlights
Innovation is essential to technological-knowledge progress, which, in turn, is an engine of economic growth (Gil et al 2013.)
Hypothesis (i): the effects of autocatalytic trade cycles on Gross Domestic Product (GDP) growth. This hypothesis deals with the effect of autocatalytic trade cycles on GDP of the countries involved
Results of the regressions indicate a significant relation between the amount, both in value and number, of autocatalytic trade cycles and GDP growth
Summary
Innovation is essential to technological-knowledge progress, which, in turn, is an engine of economic growth (Gil et al 2013.). Most countries should be interested in ways to improve their technological-knowledge competence. Journal of Business Economics and Management, 2014, 15(3): 485–508 which do not innovate (Werker 2003). This may not be the only reason to innovate: Cassell (2008) found that their decision to innovate was dependent on more factors than to save costs. A traditional way of innovating is through research and development (R&D) efforts. Empirical evidence of this growth mechanism has been shown in, for example, Lichtenberg (1993) and Coe and Helpman (1995). The first-generation of comprehensive, well articulated general equilibrium growth models based on R&D that seek to explore the role of technological knowledge change in the economic growth process, are centred on two types of R&D processes – horizontal and vertical
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