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Interaction of Drastic and Incremental Innovations: Economic Development Through Schumpeterian Waves

Author

Listed:
  • Xiangkang Yin

    (Department of Economics and Finance, La Trobe University)

  • Ehud Zuscovitch

    (Department of Economics and Finance, La Trobe University)

Abstract

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 obsolescences 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.

Suggested Citation

  • Xiangkang Yin & Ehud Zuscovitch, 1999. "Interaction of Drastic and Incremental Innovations: Economic Development Through Schumpeterian Waves," Working Papers 1999.02, School of Economics, La Trobe University.
    • Handle: RePEc:ltr:wpaper:1999.02
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