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Animal Spirits meets Creative Destruction

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Author Info
Patrick Francois (CentER and Dept. of Economics, Tilburg University)
Huw Lloyd-Ellis (CREFE and Dept. of Economics, Queen's University)

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Abstract

We show how a Schumpeterian process of creative destruction can induce rational, herd-behavior by entrepreneurs across diverse sectors of the economy that may look like it is fuelled by ``animal spirits''. Consequently, a multi-sector economy, in which sector-specific, productivity improvements are made by independent, profit-seeking entrepreneurs, can exhibit regular booms, slowdowns and downturns as an inherent part of the long-run growth process. The cyclical equilibrium that we study has a higher average growth rate but lower welfare than the corresponding acyclical one. We find that the cycles generated by our model exhibit several features of actual business cycles, and that across cycling economies, a negative relationship emerges between volatility and growth.

Nous montrons comment un processus de destruction créatrice Schumpeterien peut entraîner un comportement rationnel de masse ('moutonnier') des entrepreneurs à travers les différents secteurs de l'économie, un comportement qui peut apparaître comme provenant d'effets non fondamentaux ('esprits animaliers'). En conséquence, une économie avec des secteurs multiples dans laquelle les améliorations de productivité sont apportées par des entrepreneurs in-dépendants cherchant un profit peut être caractérisée par des expansions, des ralentissements et des baisses de façon régulière tout en étant une partie intégrante du processus de croissance à long terme. L'équilibre cyclique que nous étudions possède certes un taux de croissance moyen supérieur mais également un niveau de bien-être inférieur par rapport à l'équilibre acyclique correspondant. Nous trouvons que les cycles générés par notre modèle présentent plusieurs caractéristiques des cycles économiques observés dans les données et qu'une relation négative émerge entre la volatilité et la croissance parmis les économies caractérisées par des cycles.

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Publisher Info
Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 130.

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Length: 45 pages
Date of creation: May 2001
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Handle: RePEc:cre:crefwp:130

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Related research
Keywords: Entrepreneurship innovation endogenous business cycles endogenous growth

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Find related papers by JEL classification:
E0 - Macroeconomics and Monetary Economics - - General
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
O3 - Economic Development, Technological Change, and Growth - - Technological Change
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

References listed on IDEAS
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    Other versions:
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  4. Dellas, Harris & Sakellaris, Plutarchos, 1996. "On the cyclicality of schooling: Theory and evidence," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 1997002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  5. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-90, December. [Downloadable!] (restricted)
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  12. Kiminori Matsuyama, 1999. "Growing Through Cycles," Econometrica, Econometric Society, vol. 67(2), pages 335-348, March.
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  14. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-91, December. [Downloadable!] (restricted)
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  19. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December. [Downloadable!] (restricted)
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  20. Kenneth M. Emery & Evan F. Koenig, 1992. "Forecasting turning points: is a two-state characterization of the business cycle appropriate?," Research Paper 9214, Federal Reserve Bank of Dallas.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Boyan Jovanovic, 2004. "Asymmetric Cycles," NBER Working Papers 10573, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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