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A Model Of Growth Through Creative Destruction

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  • AGHION, P.
  • HOWITT, P.

Abstract

This paper develops a model based on Schumpeter's process of creative destruction. It departs from existing models of endogenous growth in emphasizing obsolescence of old technologies induced by the accumulation of knowledge and the resulting process or industrial innovations. This has both positive and normative implications for growth. In positive terms, the prospect of a high level of research in the future can deter research today by threatening the fruits of that research with rapid obsolescence. In normative terms, obsolescence creates a negative externality from innovations, and hence a tendency for laissez-faire economies to generate too many innovations, i.e too much growth. This "business-stealing" effect is partly compensated by the fact that innovations tend to be too small under laissez-faire. The model possesses a unique balanced growth equilibrium in which the log of GNP follows a random walk with drift. The size of the drift is the average growth rate of the economy and it is endogenous to the model ; in particular it depends on the size and likelihood of innovations resulting from research and also on the degree of market power available to an innovator.

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Bibliographic Info

Paper provided by University of Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 8904.

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Length: 49 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:uwo:uwowop:8904

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Postal: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html

Related research

Keywords: economic growth ; economic models ; innovations ; enterprises;

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References

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  1. Reinganum, Jennifer R., . "Innovation and Industry Evolution," Working Papers 426, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Zvi Griliches, 1989. "Patents: Recent Trends and Puzzles," NBER Working Papers 2922, National Bureau of Economic Research, Inc.
  3. Raymond Deneckere & Kenneth Judd, 1986. "Cyclical and Chaotic Behavior in a Dynamic Equilibrium Model," Discussion Papers 734, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  5. Jerry A. Hausman & Bronwyn H. Hall & Zvi Griliches, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," NBER Technical Working Papers 0017, National Bureau of Economic Research, Inc.
  6. Ariel Pakes, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," NBER Working Papers 1340, National Bureau of Economic Research, Inc.
  7. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  8. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-90, December.
  9. Grandmont, Jean-Michel & Laroque, Guy, 1986. "Stability of cycles and expectations," Journal of Economic Theory, Elsevier, vol. 40(1), pages 138-151, October.
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  11. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
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  1. L’avenir de la croissance américaine
    by ? in D'un champ l'autre on 2014-01-25 13:03:00
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