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Animal Spirits Meets Creative Destruction

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  • Francois, P.

    (Tilburg University, Center For Economic Research)

  • Lloyd-Ellis, H.

Abstract

We show how a Schumpeterian process of creative destruction can induce coordination in the timing of entrepreneurial activities across diverse sectors of the economy.Consequently, a multi-sector economy, in which sector-specific, productivity improvements are made by independent, profit-seeking entrepreneurs, can exhibit regular booms, slowdowns and downturns as an inherent part of the long-run growth process.The cyclical equilibrium that we study has a higher long-run growth rate but lower welfare than the corresponding acyclical one.We find that the cycles generated by our model share some features of actual business cycles, and that across cycling economies, a negative relationship emerges between volatility and growth.

Suggested Citation

  • Francois, P. & Lloyd-Ellis, H., 2001. "Animal Spirits Meets Creative Destruction," Discussion Paper 2001-36, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:d583b352-a7f4-434f-8731-93fc421c7989
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Klaus Wälde, 2005. "Endogenous Growth Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 867-894, August.
    2. Patrick Francois & Huw Lloyd- Ellis, 2005. "I - Q Cycles," Macroeconomics 0511023, EconWPA.
    3. Wälde, Klaus, 2003. "Endogenous business cycles and growth," Dresden Discussion Paper Series in Economics 12/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    4. Boyan Jovanovic, 2006. "Asymmetric Cycles," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 145-162.
    5. Olaf, POSCH & Klaus, WAELDE, 2005. "Natural volatility, welfare and taxation," Discussion Papers (ECON - Département des Sciences Economiques) 2005009, Université catholique de Louvain, Département des Sciences Economiques.
    6. Romain Rancière & Aaron Tornell & Frank Westermann, 2002. "Crises and growth: A re-evaluation," Economics Working Papers 852, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2003.
    7. Philippe Aghion & Jeremy C. Stein, 2004. "Growth vs. Margins: Destabilizing Consequences of Giving the Stock Market What it Wants," NBER Working Papers 10999, National Bureau of Economic Research, Inc.
    8. Patrick Francois & Huw Lloyd-Ellis, 2004. "Investment Cycles," Macroeconomics 0405005, EconWPA, revised 05 May 2004.
    9. Jakub Growiec & Ingmar Schumacher, 2013. "Technological opportunity, long-run growth, and convergence," Oxford Economic Papers, Oxford University Press, vol. 65(2), pages 323-351, April.
    10. Wälde, Klaus, 2003. "Endogenous business cycles and growth," Dresden Discussion Paper Series in Economics 12/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    11. Aaron Tornell, 2003. "Crises and Growth: A Re-evaluation (September 2003)," UCLA Economics Online Papers 264, UCLA Department of Economics.
    12. Taiji Harashima, 2005. "The Pro-cyclical R&D Puzzle: Technology Shocks and Pro-cyclical R&D Expenditure," Macroeconomics 0507012, EconWPA, revised 12 Jul 2005.
    13. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
    14. Gadi Barlevy, 2004. "On the timing of innovation in stochastic Schumpeterian growth models," Working Paper Series WP-04-11, Federal Reserve Bank of Chicago.
    15. Patrick Francois & Huw Lloyd-Ellis, 2005. "Schumpeterian Restructuring," Working Papers 1039, Queen's University, Department of Economics.
    16. John Foster, 2011. "Evolutionary macroeconomics: a research agenda," Journal of Evolutionary Economics, Springer, vol. 21(1), pages 5-28, February.

    More about this item

    Keywords

    economic growth; entrepreneurship; innovation; business cycles;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E0 - Macroeconomics and Monetary Economics - - General

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