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Transformation Pressure and Growth - a Missing Link in Macroeconomics

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Economists and politicians in Sweden stated in the early 1990s that devaluations of the country's currency had lessened the external pressure on manufacturing and led to a delay in structural change and rationalizations. The theory of transformation pressure generalizes the idea that productivity growth in firms is promoted by intense competition, cost pushes and low product demand. The main challenge faced by such a theory is to explain why it seems that an immediate threat is needed to get a productive response from firms. Three separate explanations are presented here emphasizing either the value of waiting to get more information about potential threats, the irrational tendency to ignore threats until they show up or the stimulation of individual creativity when firms are put under real pressure. But productivity growth is not always promoted by tight external circumstances. Growth may be maximized if pressure in each period is moderate or if periods with strong pressure are followed by periods of financial and technical consolidation, scale advantages and lesser needs to spend resources on rationalization in order to survive.

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File URL: http://www2.ne.su.se/paper/wp01_03.pdf
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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2001:3.

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Length: 36 pages
Date of creation: 27 Feb 2001
Handle: RePEc:hhs:sunrpe:2001_0003
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Department of Economics, Stockholm, S-106 91 Stockholm, Sweden

Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
Web page: http://www.ne.su.se/
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