Interaction of Drastic and Incremental Innovations: Economic Development through Schumpterian Waves
Technological progress as a major source of economic development stems from the interaction of two types of innovations, drastic and incremental. While the former sets the fundamental pace of economic progress by redefining production possibilities as Schumpeter strongly emphasized, the latter takes the basic framework as given but pushes the production possibilities frontier outwards marginally in production practice. This paper studies the dynamic interaction and effects of these endogenously-determined innovations. Upstream firms in the model "produce" drastic innovation, which turns out brand new technology and obsolesces the existing technology used by downstream firms that specialize in final goods production. After the downstream firms adopt the new technology, they can improve it further by their incremental innovations. Economic development is shaped as successive Schumpeterian waves, where each wave begins with a great leap forward in technology which is followed by a sequence of adjustments. It is found that a rise in the success probability of future drastic innovations will discourage current efforts at drastic innovation but stimulate incremental innovations. More effort by downstream firms in incremental R&D reduces upstream firms' incentives for drastic R&D. The model ensures at least one dynamic equilibrium. In the case of multiple equilibria, an equilibrium with larger investment in drastic innovation has less expenditure on incremental innovation. The comparative static analysis shows that a reduction in the expansiveness of drastic innovation, and an increase in the total sales of downstream firms and in the significance of drastic innovation will raise (reduce) drastic (incremental) R&D efforts in stationary equilibrium.
|Date of creation:||01 Aug 2000|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul Romer, 1989.
"Endogenous Technological Change,"
NBER Working Papers
3210, National Bureau of Economic Research, Inc.
- Jovanovic, Boyan & Rob, Rafael, 1990.
"Long Waves and Short Waves: Growth through Intensive and Extensive Search,"
Econometric Society, vol. 58(6), pages 1391-1409, November.
- Jovanovic, Boyan & Rob, Rafael, 1987. "Long Waves and Short Waves: Growth Through Intensive and Extensive Search," Working Papers 87-35, C.V. Starr Center for Applied Economics, New York University.
- Boyan Jovanovic & Rafael Rob, 1990. "Long Waves and Short Waves: Growth Through Intensive and Extensive Search," Levine's Working Paper Archive 2082, David K. Levine.
- Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-20, June.
- Reinganum, Jennifer F, 1983.
"Uncertain Innovation and the Persistence of Monopoly,"
American Economic Review,
American Economic Association, vol. 73(4), pages 741-48, September.
- Reinganum, Jennifer R., 1982. "Uncertain Innovation and the Persistence of Monopoly," Working Papers 431, California Institute of Technology, Division of the Humanities and Social Sciences.
- Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
- Paul M Romer, 1999.
"Increasing Returns and Long-Run Growth,"
Levine's Working Paper Archive
2232, David K. Levine.
- Dosi, Giovanni, 1982.
"Technological paradigms and technological trajectories : A suggested interpretation of the determinants and directions of technical change,"
Elsevier, vol. 11(3), pages 147-162, June.
- Dosi, Giovanni, 1993. "Technological paradigms and technological trajectories : A suggested interpretation of the determinants and directions of technical change," Research Policy, Elsevier, vol. 22(2), pages 102-103, April.
- Stein, Jeremy C, 1997. "Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 265-88, April.
- Aghion, P. & Howitt, P., 1989.
"A Model Of Growth Through Creative Destruction,"
527, Massachusetts Institute of Technology (MIT), Department of Economics.
- Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
- Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
- Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
- Kamien, Morton I & Tauman, Yair, 1986.
"Fees versus Royalties and the Private Value of a Patent,"
The Quarterly Journal of Economics,
MIT Press, vol. 101(3), pages 471-91, August.
- Morton I. Kamien & Yair Tauman, 1984. "Fees Versus Royalties and the Private Value of a Patent," Discussion Papers 583, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Zuscovitch, Ehud, 1986. "The economic dynamics of technologies development," Research Policy, Elsevier, vol. 15(4), pages 175-186, August.
- Martin L. Weitzman, 1995.
Harvard Institute of Economic Research Working Papers
1722, Harvard - Institute of Economic Research.
- Elhanan Helpman & Manuel Trajtenberg, 1994.
"A Time to Sow and a Time to Reap: Growth Based on General Purpose Technologies,"
NBER Working Papers
4854, National Bureau of Economic Research, Inc.
- Helpman, Elhanan & Trajtenberg, Manuel, 1994. "A Time to Sow and a Time to Reap: Growth Based on General Purpose Technologies," CEPR Discussion Papers 1080, C.E.P.R. Discussion Papers.
- Yin, Xiangkang & Zuscovitch, Ehud, 1998. "Economic Consequences of Limited Technology Transferability," Australian Economic Papers, Wiley Blackwell, vol. 37(1), pages 22-35, March.
- Moshe Justman, 1996. "Swarming Mechanics," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 4(3), pages 235-244.
- Young, Alwyn, 1993. "Invention and Bounded Learning by Doing," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 443-72, June.
- Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:0989. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.