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From Smith to Schumpeter: A Theory of Take-Off and Convergence to Sustained Growth

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  • Pietro F. Peretto

Abstract

This paper develops a theory of the emergence of modern innovation-driven Schumpeterian growth. It uses a tractable model that yields a closed-form solution, consisting of an S-shaped (i.e., logistic-like) time path of firm size and a set of equations that express the relevant endogenous variables – GDP, product variety and product quality, consumption, the shares of GDP earned by the factors of production – as functions of firm size. It also obtains closed-form solutions for the dates of the events that drive the economy's phase transitions as functions of the fundamentals. The resulting path of GDP per capita consists of a convex-concave profile replicating the key feature of long-run data: an accelerating phase followed by a deceleration with convergence to a stationary growth rate. Compared to other availables theories, the paper focuses on the within-industry forces that regulate the response of firms and entrepreneurs to Smithian market expansion.

Suggested Citation

  • Pietro F. Peretto, 2013. "From Smith to Schumpeter: A Theory of Take-Off and Convergence to Sustained Growth," Working Papers 13-10, Duke University, Department of Economics.
    • Handle: RePEc:duk:dukeec:13-10
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    References listed on IDEAS

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    More about this item

    Keywords

    Endogenous Growth; Firm Size; Market Structure; Take-off;
    All these keywords.

    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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