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Firm Tunrover and the Rate of Macroeconomic Growth - Simulating the Macroeconomic Effects of Schumpeterian Creative Destruction

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Author Info

  • Eliasson, Gunnar

    ()
    (Royal Institute of Technology)

  • Johansson, Dan

    ()
    (The Ratio Institute)

  • Taymaz, Erol

    (Middle East Technical University)

Abstract

The positive effects of new innovative entry and fast and efficient allocation of resources are balanced against the efficiency of price signaling in markets in a non-linear micro based simulation model of an Experimentally Organized Economy (EOE). In this model increasingly rapid reallocation of resources over markets, moved by innovative new entry and competitive exit (the rate of firm turnover) generates faster growth in output, but eventually, if too fast, is shown to affect the reliability of price signaling in markets and to raise the frequency of investment mistakes. Beyond a certain level of the rate of firm turnover the aggregate effects at the macro level, therefore, turn negative. This optimal growth trajectory depends on the balance between the rates of entry and exit and on the performance of new firms compared to incumbents, their size compared to incumbents and the variation in the same characteristics.

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Bibliographic Info

Paper provided by The Ratio Institute in its series Ratio Working Papers with number 66.

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Length: 31 pages
Date of creation: 18 Jan 2005
Date of revision:
Handle: RePEc:hhs:ratioi:0066

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Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Phone: 08-441 59 00
Fax: 08-441 59 29
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Web page: http://www.ratio.se/
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Related research

Keywords: Business Mistakes; Economic Systems Stability; Endogenous Growth; Experimentally Organized Economy (EOE); Firm Turnover;

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Citations

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Cited by:
  1. Eliasson, Gunnar & Johansson, Dan & Taymaz, Erol, 2004. "Simulating the New Economy," Structural Change and Economic Dynamics, Elsevier, vol. 15(3), pages 289-314, September.
  2. Eliasson, Gunnar & Eliasson, Åsa, 2004. "The Theory of the Firm and the Markets for Strategic Acquisitions," Ratio Working Papers 44, The Ratio Institute.
  3. Dan Johansson, 2010. "The theory of the experimentally organized economy and competence blocs: an introduction," Journal of Evolutionary Economics, Springer, vol. 20(2), pages 185-201, April.
  4. Eliasson, Gunnar, 2004. "Ignorant Actors in the Resource Rich World of the Knowledge Based Economy - On Rational Management in an Experimentally Organized Economy (EOE)," Ratio Working Papers 47, The Ratio Institute.

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