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Schumpeterian Macroeconomic Production Function for Open Economies: A New Endogenous Knowledge and Output Analysis

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  • Paul J.J. Welfens

    () (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)
    Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))

Abstract

The macroeconomic production function is a traditional key element of modern macroeconomics, as is the more recent knowledge production function which explains knowledge/patents by certain input factors such as research, foreign direct investment or international technology spillovers. This study is a major contribution to innovation, trade, FDI and growth analysis, namely in the form of a combination of an empirically relevant knowledge production function for open economies - with both trade and inward FDI as well as outward foreign direct investment plus research input – with a macro production function. Plugging the open economy knowledge production function into a standard macroeconomic production function yields important new insights for many fields: The estimation of the production potential in an open economy, growth decomposition analysis in the context of economic globalization and the demand for labor as well as long run international output interdependency of big countries; and this includes a view at the asymmetric case of a simple two country world in which one country is at full employment while the other is facing underutilized capacities. Finally, there are crucial implications for the analyis of broad regional integration schemes such as TTIP or TPP and a more realistic and comprehensive empirical analysis.

Suggested Citation

  • Paul J.J. Welfens, 2016. "Schumpeterian Macroeconomic Production Function for Open Economies: A New Endogenous Knowledge and Output Analysis," EIIW Discussion paper disbei211, Universitätsbibliothek Wuppertal, University Library.
    • Handle: RePEc:bwu:eiiwdp:disbei211
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    References listed on IDEAS

    as
    1. Yasser Abdih & Frederick Joutz, 2006. "Relating the Knowledge Production Function to Total Factor Productivity: An Endogenous Growth Puzzle," IMF Staff Papers, Palgrave Macmillan, vol. 53(2), pages 1-3.
    2. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    3. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 17-45, National Bureau of Economic Research, Inc.
    4. Edward M. Graham & Paul Krugman, 1995. "Foreign Direct Investment in the United States, 3rd Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 52.
    5. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    6. Stefan Lachenmaier & Ludger Wößmann, 2006. "Does innovation cause exports? Evidence from exogenous innovation impulses and obstacles using German micro data," Oxford Economic Papers, Oxford University Press, vol. 58(2), pages 317-350, April.
    7. Andre Jungmittag, 2004. "Innovations, technological specialisation and economic growth in the EU," International Economics and Economic Policy, Springer, vol. 1(2), pages 247-273, January.
    8. Andre Jungmittag & Paul Welfens, 2009. "Liberalization of EU telecommunications and trade: theory, gravity equation analysis and policy implications," International Economics and Economic Policy, Springer, vol. 6(1), pages 23-39, June.
    9. Bernhard Dachs, 2016. "Techno-Globalisierung als Motor des Aufholprozesses im österreichischen Innovationssystem," EIIW Discussion paper disbei222, Universitätsbibliothek Wuppertal, University Library.
    10. Andre Jungmittag, 2016. "Techno-Globalisierung," EIIW Discussion paper disbei221, Universitätsbibliothek Wuppertal, University Library.
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    More about this item

    Keywords

    Potential Output; Innovation; Knowledge Production Function; Macroeconomics; Globalization;

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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