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From Smith to Schumpeter: A theory of take-off and convergence to sustained growth

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  • Peretto, Pietro F.

Abstract

This paper proposes a theory of the emergence of modern Schumpeterian growth that focuses on the within-industry forces that regulate the response of firms and entrepreneurs to Smithian market expansion and thus identifies an amplification mechanism that the literature has neglected. Because it solves the model in closed-form, the paper provides analytical insight on the forces that drive the economy׳s phase transition and the associated qualitative transformation of industrial activity. The resulting S-shaped path of GDP per capita replicates the key feature of the data: an accelerating phase followed by a deceleration with convergence to a stationary growth rate. The model also yields predictions for grand ratios like consumption/GDP, profits/GDP, and the distribution of income across factors of production.

Suggested Citation

  • Peretto, Pietro F., 2015. "From Smith to Schumpeter: A theory of take-off and convergence to sustained growth," European Economic Review, Elsevier, vol. 78(C), pages 1-26.
  • Handle: RePEc:eee:eecrev:v:78:y:2015:i:c:p:1-26
    DOI: 10.1016/j.euroecorev.2015.05.001
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    References listed on IDEAS

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    1. Klaus Desmet & Stephen Parente, 2012. "The evolution of markets and the revolution of industry: a unified theory of growth," Journal of Economic Growth, Springer, vol. 17(3), pages 205-234, September.
    2. Kelly, M., 1996. "The Dynamics of Smithian growth," Papers 96/9, College Dublin, Department of Political Economy-.
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    5. Peretto, Pietro F., 1999. "Industrial development, technological change, and long-run growth," Journal of Development Economics, Elsevier, vol. 59(2), pages 389-417, August.
    6. Oded Galor, 2011. "Unified Growth Theory," Economics Books, Princeton University Press, edition 1, number 9477.
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    9. Peretto, Pietro F, 1998. "Technological Change, Market Rivalry, and the Evolution of the Capitalist Engine of Growth," Journal of Economic Growth, Springer, vol. 3(1), pages 53-80, March.
    10. Mokyr, Joel, 2010. "The Contribution of Economic History to the Study of Innovation and Technical Change," Handbook of the Economics of Innovation, Elsevier.
    11. Galor, Oded, 2005. "From Stagnation to Growth: Unified Growth Theory," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 4, pages 171-293 Elsevier.
    12. David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September.
    13. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
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    Cited by:

    1. Jakob Brochner Madsen, 2016. "Human Accomplishment and Growth in Britain since 1270: The Role of Great Scientists and Education," Monash Economics Working Papers 01-16, Monash University, Department of Economics.
    2. Zakaria Babutsidze & Maurizio Iacopetta, 2016. "Innovation, growth and financial markets," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 1-24, March.
    3. Maurizio Iacopetta, 2016. "Commercial Revolutions, Search, and Development," 2016 Meeting Papers 1394, Society for Economic Dynamics.
    4. repec:kap:jecgro:v:22:y:2017:i:3:d:10.1007_s10887-017-9145-z is not listed on IDEAS
    5. Jakob Brochner Madsen, 2016. "Wealth And Inequality In Eight Centuries Of British Capitalism," Monash Economics Working Papers 20-16, Monash University, Department of Economics.
    6. Mauro Rota & Luca Spinesi, 2013. "At the Onset of the original capital accumulation," Departmental Working Papers of Economics - University 'Roma Tre' 0179, Department of Economics - University Roma Tre.
    7. Attar, M. Aykut, 2015. "Entrepreneurship, knowledge, and the industrial revolution," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-54.
    8. Maurizion Iacopetta, 2016. "Commercial revolutions, search, and development," Documents de Travail de l'OFCE 2016-08, Observatoire Francais des Conjonctures Economiques (OFCE).
    9. Christos Karydas, 2017. "The inter-temporal dimension to knowledge spillovers: any non-environmental reason to support clean innovation?," CER-ETH Economics working paper series 17/267, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

    More about this item

    Keywords

    Endogenous growth; Firm size; Market structure; Take-off;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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