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Transformation Pressure and Growth - a Missing Link in Macroeconomics

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Abstract

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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  • Erixon, Lennart, 2001. "Transformation Pressure and Growth - a Missing Link in Macroeconomics," Research Papers in Economics 2001:3, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:2001_0003
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    More about this item

    Keywords

    Transformation pressure; Competition; X-inefficiency; Innovations; Productivity; Growth; Irrationality; Uncertainty; R&D investments;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • N64 - Economic History - - Manufacturing and Construction - - - Europe: 1913-
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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