Schumpeterian Model Research Articles

A Schumpeterian Model of Entrepreneurship, Innovation, and Regional Economic Growth

The authors provide the first theoretical analysis of a one-sector, discrete-time, Schumpeterian model of growth in a regional economy in which consumers are risk neutral, there is no population growth, monopolistic entrepreneurs produce intermediate goods, and a single consumption good is produced competitively. The authors' analysis generates several new results. In the deterministic model, R&D in time t surely leads to an innovation in time t + 1. In this setting, the authors show that relative to the balanced growth path (BGP) equilibrium, the social planner always allocates more labor to R&D and hence achieves a larger size of innovation and a higher growth rate. Next, in the stochastic model, R&D in time t probabilistically leads to an innovation in time t + 1. In this setting, the authors first define the equilibrium and the steady state BGP allocations. Second, the authors generalize the notion of the steady state and determine the number of unemployed workers. Third, the authors show that the regional economy experiences bursts of unemployment followed by periods of full employment. Finally, the authors show that a decline in the time discount rate increases the average growth rate and the average unemployment.

Burgers type equations, Gelfand’s problem and Schumpeterian dynamics

Burgers’ equations have been introduced to study different models of fluids (Bateman, 1915, Burgers, 1939, Hopf, 1950, Cole, 1951, Lighthill andWhitham, 1955, etc.). The difference-differential analogues of these equations have been proposed for Schumpeterian models of economic development (Iwai, 1984, Polterovich and Henkin, 1988, Belenky, 1990, Henkin and Polterovich, 1999, Tashlitskaya and Shananin, 2000, etc.).

Innovación y crecimiento económico: Factores que estimulan la innovación

The goal of this paper is to analyze the role played by innovations on economic activity. In this sense, the relationship between innovation and economic growth is studied, being economic growth the current main objective of economic policy to reduce unemployment and to increase social welfare. To carry out this analysis we base on Schumpeter's model, playing entrepreneurship and social climate an important role in the process. The empirical analysis an innovations equation for the case of 11 developed countries is included, showing that the social climate, represented by the training and income distribution, and monetary policy, represented by money supply, stimulate innovations.

Technological Capital and Technical Progress in the G5 Countries

We conduct an empirical application based on Coe and Helpman's (1995) seminal work, in order to measure the elasticity of technical progress with respect to R&D capital for the G5 countries between 1971 and 2003. For this purpose, a series for technological capital is built for the 1990–2003 period, and linked with Coe and Helpman's series for the 1971–1990 period. The technical progress of leading countries depends critically on the domestic R&D capital stock, in line with Coe and Helpman's (1995) and Coe, Helpman and Hofmaister's (2009) work. Nevertheless, there are some important differences. The estimations for the elasticity values appear to be higher and show larger differences between countries than in previous studies. Furthermore, the results give evidence in favour of Schumpeterian models, as TFP growth is positively related to the distance to the technological frontier represented by the US.

Towards the Sixth Kondratieff Cycle of Nano Revolution

Nanotechnology is currently seen as a paradigm shift towards scientific revolution or ‘nano revolution. This article discusses the nano revolution within the global context. It is interesting to see that the governments around the world have formulated policies to manage the research and development (R&D) efforts and exploit the potential of nanotechnology to increase industry's ability in the global economy. The article analyses the successive waves of technological change based on Kuhn's model of scientific change and Schumpeter's model of Kondratieff cycles. As nanotechnology would have significant impacts on virtually every commercial sector, many countries commit to foster nanotechnology developments. This article will focus on nanotechnology framework policy recommendations. The policies and research activities of the most preeminent nations discussed in this article represent global research trend towards nano revolution in the next decades.

Aghion and Howitt's Basic Schumpeterian Model of Growth Through Creative Destruction: A Geometric Interpretation

The present paper takes a geometric approach to characterize the competitive forces behind innovation and dynamic general equilibria determination in the model of growth through creative destruction constructed by Aghion and Howitt (1992). All the essentials can be comprehended intuitively from the geometric presentation. While Aghion and Howitt's original presentation of the basic model was essentially analytical, often with fairly intricate mathematics focusing on stationary equilibria with positive growth, the geometric presentation taken here has the benefit of making what in the original paper was a bundle of mathematical notation more comprehensible intuitively. An original contribution of our paper resides in placing together explicitly in the same figure four different relations of that model. Moreover the graphical relation characterizing the research sector is not originally drawn nor explicitly stated in Aghion and Howitt (1992) model. The missing graphical relationship there is one strictly between the expected amount of research next period and the growth-adjusted wage rate. Thus, in order to fill up this gap, we also define and then characterize the behavior of an appropriate arbitrage condition curve.

The European Union: A Schumpeterian Model of Democracy

One of the most discussed aspects of the so called democratic deficit of the EU is the lack of a European Public Sphere. The Union's democracy is perceived by its citizens as Schumpeterian in nature and this perception corresponds to a large extent to reality. Schumpeter described democracy as the rule of the politician, who gains decision making power in the free competition over votes. The parliament's role is of minor importance; it decides more by acceptance than by initiative. Citizens can neither bring up the issues nor decide them. The European Union is indeed an ideal platform for such a model, because it is complicated, technocratic and rather opaque. European integration was and still is an elite-dominated project, where citizens do not have many possibilities to intervene during legislation-periods. Over many years, the consensual behaviour of the political elites hindered the emergence of broad debate and of conflict in a European Public Sphere. Only in the last years, politicians tried to turn the table by stressing the importance of the European citizens. A convention was installed to work out a Constitutional Treaty. But once again, the debate remained elite-dominated. The heads of governments finally signed another elitist compromise without listening to the citizens. In consequence, the rejection of the Constitutional Treaty in France and the Netherlands in 2005 is the result of an elitist and Schumpeterian model of democracy which is perpetuated by the new reform treaty of Lisbon. Thus, the claim for a European public sphere remains relevant. But scholars differently define such a sphere. The argument of this paper is that besides the often claimed Europeanization and transnationalisation of European debate the notion of broad conflict is of high importance for the emergence of a European public sphere.

A Schumpeterian Model of Entrepreneurship, Innovation, and Regional Economic Growth

We provide the first theoretical analysis of a one-sector, discrete-time, Schumpeterian model of growth in a regional economy in which consumers are risk neutral, there is no population growth, monopolistic entrepreneurs produce intermediate goods, and a single consumption good is produced competitively. Our analysis generates several new results. In the deterministic model, R&D in time t surely leads to an innovation in time t 1. In this setting, we show that relative to the balanced growth path (BGP) equilibrium, the social planner always allocates more labor to R&D and hence achieves a larger size of innovation and a higher growth rate. Next, in the stochastic model, R&D in time t probabilistically leads to an innovation in time t 1. In this setting, we first define the equilibrium and the steady state BGP allocations. Second, we generalize the notion of the steady state and determine the number of unemployed workers. Third, we show that our regional economy experiences bursts of unemployment followed by periods of full employment. Finally, we show that a decline in the time discount rate increases the average growth rate and the average unemployment.

Leadership Contestability, Monopolistic Rents and Growth

I construct an endogenous growth model where R&D is carried out at the industry level in a game of innovation between leaders and followers. Innovation costs for followers are assumed to increase with the technological lag from leaders. We obtain three results that contrast with standard Schumpeterian models, such as Aghion and Howitt (1992). First, leaders may innovate in equilibrium, in an attempt to force followers out of the innovation game. Second, policies (such as patents) that allow for strong protections of monopolies can reduce the steady state growth rate of the economy. Third, multiple equilibria arise when monopolies' protection is large.

Resource abundance, growth and welfare: A Schumpeterian perspective

This paper takes a new look at the long-run implications of resource abundance. It develops a Schumpeterian model of endogenous growth that incorporates an upstream resource-intensive sector and yields an analytical solution for the transition path. It then derives conditions under which, as the economy's endowment of a natural resource rises, (i) growth accelerates and welfare rises, (ii) growth decelerates but welfare rises nevertheless, and (iii) growth decelerates and welfare falls. Which of these scenarios prevails depends on the response of the natural resource price to an increase in the resource endowment. The price response determines the change in income earned by the owners of the resource (the households) and thereby the change in their expenditure on manufacturing goods. Since manufacturing is the economy's innovative sector, this income-to-expenditure effect links resource abundance to the size of the market for manufacturing goods and drives how re-source abundance affects incentives to undertake innovative activity.

Towards a theory of endogenous market structure in strategy

PurposeThe thought and rationale of sustainable competitive advantage in strategy are significantly influenced by the Schumpeterian models of dynamic competition in IO and evolutionary economics. Yet, most analytical accounts of sustainable competitive advantage fail to explain how firms' investment choices influence, and are simultaneously influenced by, the co‐evolution of “external” industry competition and “internal” firm competences. This paper aims to contribute to the development of a theory of endogenous market structure in strategy.Design/methodology/approachTwo alternative assumptions are developed – concerning temporally heterogeneous firm investment strategy – that lie central to a proposed behavioral theory of endogenous market structure. Additionally, a theoretical description is provided of the endogeneity of the demand‐side determinants of firm investment strategy and industrial market structure. Finally, guidelines are provided for empirical application of [incorporating] the alternative assumptions and theoretical arguments.Practical implicationsIt is expected that the theoretical arguments in the paper will influence strategy scholars to develop dynamic models of firm performance that render themselves amenable to sound empirical analyses.Originality/valueThe paper contributes towards developing a theory of endogenous market structure in strategy.

Trade and Firm Heterogeneity in a Schumpeterian Model of Growth

The present paper explores the effect of trade liberalization on the level of productivity as well as the rate of productivity growth in an R&D-based model with heterogeneous firms. We introduce new and plausible features that are absent in existing studies. First, technical progress takes the form of continual quality improvement of products over time. Second, firm entry and exit are endogenously determined due to creative destruction of products. In this framework, we demonstrate that a lower transport cost or export sunk cost unambiguously reallocates resources from non-exporting industries to R&D as well as exporting industries. This means that trade liberalization increases the rate of technical progress as well as the level of manufacturing productivity. These results are found to be robust in an extended model with population growth without scale effects.

Economic Downturn and Investment in Innovation: Is Accumulation More Creative than Destruction?

The 2008 economic crisis has severely reduced the short-term willingness of firms to invest in innovation. But this reduction has not occurred uniformly and a few firms have even increased their investment in spite of the adverse macroeconomic environment. On the ground of a fresh European Survey carried out by Innobarometer, this paper compares drivers of innovation investment before, during and following on from the crisis. Using the two Schumpeterian models of technological accumulation and creative destruction the paper shows that before the crisis incumbent firms were more likely to expand their innovation investment, but that the crisis has reverted this picture, giving space to a restricted number of small firms and new entrants that swim against the stream and are expanding innovative

Innovation by Entrants and Incumbents

We extend the basic Schumpeterian endogenous growth model by allowing incumbents to undertake innovations to improve their products, while entrants engage in more “radical” innovations to replace incumbents. Our model provides a tractable framework for the analysis of growth driven by both entry of new firms and productivity improvements by continuing firms. Unlike in the basic Schumpeterian models, subsidies to potential entrants might decrease economic growth because they discourage productivity improvements by incumbents in response to reduced entry, which may outweigh the positive effect of greater creative destruction. As the model features entry of new firms and expansion and exit of existing firms, it also generates a non-degenerate equilibrium firm size distribution. We show that when there is also costly imitation preventing any sector from falling too far below the average, the stationary firm size distribution is Pareto with an exponent approximately equal to one (the so-called “Zipf” distribution”).

Why creative industries matter to economic evolution

This paper proposes that the ‘creative industries (CIs)’ play an important yet widely unexamined function in economic evolution through their role in the innovation process. This occurs in terms of the facilitation of demand for novelty, the provision and development of social technologies for producer–consumer interactions, and the adoption and embedding of new technologies as institutions. The incorporation of CIs into the Schumpeterian model of economic evolution thus fills a notable gap in the social technologies of the origination, adoption and retention of innovation.

Technology and growth in Spain (1950–1960): An evidence of Schumpeterian pattern of innovation based on patents

The analysis of the structural changes in the Spanish economy (1950–1960) has been undertaken using Schumpeterian models of innovation. As patent information plays an important role in technological development, this study has been based on the availability of a newly released data from the Spanish Patent and Trademark Office. This analysis has been specified by means of the development of indicators relating to the degree of concentration of innovative activity, the innovation size of companies, the level of instability, the technological growth rate, and the presence of foreign innovators. The results highlight the existence of typical technological factors intrinsic to the sectors of economic activity and invariants between countries.

Economic integration in the quality ladder model

Here we perform the same kind of "integration experiments" as in Rivera-Batiz and Romer (1991), this time in the context of a "quality ladder model", where international trade integration is not enough to prevent redundancy of R&D efforts. Thus a further kind of integration is analysed: "financial market integration". We adopt as a setup the Simple Schumpeterian Model in Aghion and Howitt (2005), whose innovation technology differs sharply from the ones conceived by Rivera-Batiz and Romer in that it displays decreasing returns to scale.

R&D subsidies in a model of growth with dynamic market structure

This paper presents the effects of an R&D subsidy in a Schumpeterian general equilibrium model with rich industry dynamics. R&D subsidies raise the long-run growth rate, but they also raise the level of industry concentration. In the model firms compete for market share through process R&D endogenously determining the market structure within and across industries. Endogeneity of the market structure allows for analysis of changes in the moments of the firm size distribution in response to policy. R&D subsidies primarily benefit large incumbent firms who increase their innovation rates creating a greater technological barrier to entry. Concentration increases with fewer firms and a higher variance in the market shares. In general equilibrium, the greater distortions in the product market cause the wage rate to fall which leads to increased turnover rates. In addition, the analysis demonstrates that the model captures a large number of empirical regularities described in the industrial organization literature, but absent from most endogenous growth models. These features, such as entering firms are small relative to incumbents, the hazard rate of exit is negatively related to firm size, and large firms spend more on R&D than small firms play important roles in understanding the impact of R&D subsidies on the economy.

Redistribution and entrepreneurship with Schumpeterian growth

We examine the effects of redistributive taxation on growth and inequality in a Schumpeterian model with risk-averse agents. There are skilled and unskilled workers, and the growth rate is determined by the occupational choice of skilled agents between entrepre- neurship and employment. We show that redistribution provides insurance to entrepreneurs and increases the growth rate. The effects on inequality are such that low tax rates increase inequality relative to laissez-faire due to changes in wages, but higher tax rates can simulta- neously raise growth and reduce inequality. We contrast the optimal linear income tax with alternative policies for promoting R&D and find that it is preferable on both equity and efficiency grounds.

Semi-endogenous versus Schumpeterian growth models: testing the knowledge production function using international data

Using various indicators of innovative activity and product variety in the OECD countries over the past century, this paper tests first- and second-generation models of economic growth. The estimation results give evidence in favour of Schumpeterian models, while the semi-endogenous growth theories are shown not to be consistent with the data.