Endogenous knowledge externalities: an agent based simulation model where schumpeter meets Marshall

The paper elaborates an agent based simulation model (ABSM) to explore the endogenous long-term dynamics of technological and structural change determined by Schumpeterian reactions to unexpected changes in the system that are made possible by the actual availability of Marshallian knowledge externalities that are at the heart of economic growth. From this viewpoint ABSM, as a form of artificial cliometrics, provides the opportunity to explore the role of endogenous knowledge externalities for the long run dynamics of the system. The results of the simulations confirm that endogenous knowledge externalities have powerful effects on the equilibrium conditions of the system dynamics at the micro, the meso and the macro levels. At the micro-level the reaction of firms caught in out-of-equilibrium conditions yields successful effects with the introduction of productivity enhancing innovations only when and where positive pecuniary knowledge externalities are actually available. At the meso-level the out-of-equilibrium dynamics of endogenous knowledge externalities affect the structural characteristics of the system. Endogenous centrifugal and centripetal forces re-shape continually the structure of the system. At the macro system level the out-of-equilibrium process leads, to step-wise increase of productivity for the system as a whole, while individual commons are exposed to nonliner patterns of output growth characterized by significant oscillations that take the typical form of long waves, familiar to the Schumpeterian analysis of business cycles.