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Economic Development, Variety and Employment

  • Pier-Paolo Saviotti
  • Andreas Pyka

In this paper economic development occurs due to the creation of new sectors. Each sector is created by a major innovation, giving rise to a new market whose size is measured by the adjustment gap. The changes in the composition of the economic system occurring during economic development give rise to an increase in variety, measured by the changes in informational entropy of the economic system. The results of the paper show that the growing variety of the economic system can lead to a growing creation of employment even when the capacity to create employment within each sector declines as the sector matures. The paper confirms the important role that variety can play in sustaining economic development in the long run.

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Article provided by Presses de Sciences-Po in its journal Revue économique.

Volume (Year): 55 (2004)
Issue (Month): 6 ()
Pages: 1023-1049

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Handle: RePEc:cai:recosp:reco_556_1023
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  1. Lancaster, Kelvin, 1975. "Socially Optimal Product Differentiation," American Economic Review, American Economic Association, vol. 65(4), pages 567-85, September.
  2. Jan Fagerberg, 2000. "Technological Progress, Structural Change and Productivity Growth: A Comparative Study," Working Papers 5, Centre for Technology, Innovation and Culture, University of Oslo.
  3. Jovanovic, B. & MacDonald, G., 1993. "The Life Cycle of a Competitive Industry," Working Papers 93-34, C.V. Starr Center for Applied Economics, New York University.
  4. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
  5. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
  6. Frenken, Koen & Saviotti, Paolo P. & Trommetter, Michel, 1999. "Variety and niche creation in aircraft, helicopters, motorcycles and microcomputers," Research Policy, Elsevier, vol. 28(5), pages 469-488, June.
  7. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  8. Jan Fagerberg & Bart Verspagen, 1999. "Productivity, R&D Spillovers and Trade," Working Papers 3, Centre for Technology, Innovation and Culture, University of Oslo.
  9. Pier Saviotti & Andreas Pyka, 2004. "Economic development by the creation of new sectors," Journal of Evolutionary Economics, Springer, vol. 14(1), pages 1-35, January.
  10. Saviotti, P. P. & Metcalfe, J. S., 1984. "A theoretical approach to the construction of technological output indicators," Research Policy, Elsevier, vol. 13(3), pages 141-151, June.
  11. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
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