Capital Accumulation and Innovation as Complementary Factors in Long-Run Growth

We study capital accumulation and innovation as determinants of long-run growth by adding capital to our earlier model of creative destruction. No special functional forms are imposed on the aggregate production function. The equations describing perfect foresight equilibrium are identical to those of the augmented Ramsey-Cass-Koopmans model, except that the rate of technological change is a function of the stock of capital per effective worker. Contrary to previous models, a subsidy to capital accumulation will raise the long-run growth rate. The key assumption is that capital is used in R and D. Some evidence is presented on the capital intensity of R and D.     

Technology Shocks and Job Flows

We consider a version of the Solow growth model where technological progress can be investment specific or investment neutral. The labour market is subject to search frictions, and the existing productive units may fail to adopt the most recent technological advances. Technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment. We calibrate the model to replicate the high persistence that characterizes the dynamics of firms' neutral technology and the frequency of firms' capital adjustment. We find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment. Investment-specific technological advances reduce job destruction, have mild effects on job creation, and are expansionary. Hence, neutral technological progress prompts Schumpeterian creative destruction, while investment-specific technological progress operates essentially as in the standard neoclassical growth model. Using structural VAR models, we provide support to the key dynamic implications of the model.     

A Schumpeterian model of equilibrium unemployment and labor turnover

This paper constructs a general equilibrium model of equilibrium unemployment by combining an endogenous growth model with a variant of equilibrium search theory. The analysis offers two explanations for the causes of widening wage gap between skilled and less-skilled labor, and rising unemployment rate among the less skilled: technological change in the form of an increase in the size of innovations or skilled labor saving technological change in R&D activity. In addition, the model identifies two distinct effects of faster technological progress on the aggregate unemployment rate. First, it increases the rate of labor turnover and therefore increases the aggregate unemployment rate – the creative destruction effect. Second, it creates R&D jobs, which offer workers complete job security, and consequently reduces the aggregate unemployment rate – the resource reallocation effect.     

Is there evidence of creative destruction in the Turkish manufacturing sector? Lessons from a cross-industry analysis of aggregate productivity growth

This paper examines the Schumpeterian creative destruction process by decomposing and analysing aggregate industry-level productivity growth in three Turkish manufacturing industries. The results are somewhat supportive of the Schumpeterian hypothesis given that the productivity effects within plants contributed the most to the aggregate level productivity growth. However, the results generally contradict the insight that plants entering the market have higher productivity than plants that exit the market. This supports Caballero and Hammour's (NBER Working Paper No. 7720, 2000) arguments that institutional and market constraints may interfere with the proper functioning of Schumpeter's creative destruction process.     

Productivity growth and stock returns: firm- and aggregate-level analyses

A firm’s stock return is affected not only by its own productivity growth rate, but also by other firms’ productivity growth rates. We show that this spillover effect is significant and time-varying, and underlies a fallacy of composition observed in late 20th century U.S. data: stock returns and productivity growth are correlated positively in firm-level data but negatively in aggregate data. This seeming fallacy of composition reflects Schumpeterian creative destruction: a few technology winners’ stocks rise with their rising productivity while many technology losers’ stocks fall with their declining productivity. Thus, most individual firms’ stock returns correlate negatively with aggregate productivity growth. This implies that technological innovation need not be a blessing for all firms and as a result, for investors holding the market. Our findings also provide a firm-level technology innovation-based explanation of prior findings that the market return correlates negatively with aggregate earnings.     

Too Much of a Good Thing? The Economics of Investment in R&D

Research and development is a key determinant of long-run productivity and welfare. A central issue is whether a decentralized economy undertakes too little or too much R&D. We develop an endogenous growth model that incorporates parametrically four important distortions to R&D: the surplus appropriability problem, knowledge spillovers, creative destruction, and duplication externalities. Calibrating the model, we find that the decentralized economy typically underinvests in R&D relative to what is socially optimal. The only exceptions to this conclusion occur when the duplication externality is strong and the equilibrium real interest rate is simultaneously high.     

The role of mortality in the transmission of knowledge

We investigate, both theoretically and quantitatively, a previously unexplored link between gains in adult mortality and productivity growth. Our mechanism allocates a central role to individuals as carriers of useful ideas and to personal contact as an important means of transferring these ideas. It thus implies that disrupting a human life impedes the process of knowledge transmission across time. We derive a simple and intuitive form of the dependence of aggregate knowledge transfer on adult mortality and incorporate it into a model of endogenous growth. We then quantitatively examine the relevance of the proposed link in application to the long-run growth experience of England. Our calibration exercise suggests that the reduction in adult mortality, by improving knowledge transmission across time and encouraging more innovation, was a quantitatively important force behind the takeoff in output per capita.     

Endogenous technological progress in a multi-sector growth model

This paper presents an endogenous growth model driven by human capital, where human capital can be allocated across three sectors: the production of the final consumption good, the educational sector and the production of technological capital (in the form of knowledge or ideas). In our model, which also includes public expenditure and population growth, labor augmenting technical progress is endogenous and this enriches the transitional dynamics of the economy. With respect to ideas-based growth models, we assume knowledge is produced according to a neoclassical technology, combining ideas and human capital. Such an assumption is motivated by empirical works showing the existence of significant decreasing returns in the creation of ideas at the aggregate level (as Kortum, 1993; and Pessoa, 2005) and of the weak relationship between some inputs of the knowledge production process (as the number of researchers) and the total factor productivity growth rate (as Jones, 2002). Under some general conditions, this economy exhibits the existence of a steady state equilibrium and an unstable multidimensional manifold. Numerical examples are provided to show the existence of stable arms.     

THE IMPACT OF TFP GROWTH ON STEADY‐STATE UNEMPLOYMENT*

Theoretical predictions of the impact of total factor productivity (TFP) growth on unemployment are ambiguous, and depend on the extent to which new technology is embodied in new jobs. We evaluate a model with embodied and disembodied technology, capitalization, and creative destruction effects. In econometric estimates with a panel of industrial countries we find a large negative impact of TFP growth on unemployment, which implies that embodied technology and creative destruction play no role in the steady‐state dynamics of unemployment. Capitalization effects explain some of the estimated impact but a part remains unexplained.     

The Agency Cost of Internal Collusion and Schumpeterian Growth

This paper analyses the link between the internal organization of the firm and the growth process. We present a Schumpeterian growth model in which monopoly firms face agency costs due to collusion between managers inside the organization. These costs affect incentives to invest and the rate of innovation in the economy. When collusion is self-enforcing, higher growth and more creative destruction shortens in turn the time horizon of colluding agents in the organization and makes internal collusion more difficult to sustain. We analyse this two-way mechanism between growth and agency problems and show how the transaction costs of side-contracting within the firm and the growth rate of the economy are simultaneously derived.     

Two-part tariffs in the online gaming industry: The role of creative destruction and network externalities

Playing computer games online is a fast growing, billion dollar industry which has received little academic attention. The industry exhibits a number of interesting economic features. The industry structure is determined by creative destruction as in Aghion and Howitt (1992) [Aghion, P., Howitt, P. 1992. A model of growth through creative destruction, Econometrica, 60(2), 323–351], with game makers experiencing market power within a genre until the game is superceded. Furthermore, the attractiveness of playing a game online depends on the existence of opponents (positive network externalities) while technical and reputational problems eventually arise (negative network externalities). We model the choice of two-part tariffs by a monopolist under creative destruction and network externalities and derive conditions for the multiple equilibria which currently exist in the industry.     

Macroeconomic uncertainty,inflation and growth: Regime-dependent effects in the G7

We analyze the causal effects of real and nominal macroeconomic uncertainty on inflation and output growth by considering whether these effects are cycle phase specific. Employing a bivariate Smooth Transition EGARCH-M model for the G7 countries during 1957–2009, we find strong nonlinearities. First, uncertainty regarding the output growth rate is related with a higher average growth rate mostly in a low-growth regime, supporting the theory of “creative destruction”. Second, higher inflation uncertainty diminishes growth rates, mainly at a high-inflation regime. Finally, real uncertainty has mixed effects on average inflation, while the effect of nominal uncertainty is typically positive, especially so during inflationary periods. Our findings suggest that these relationships are sufficiently complex to require treatment with nonlinear models.     

Trade and firm heterogeneity in a Schumpeterian model of growth

The present paper explores the effect of trade liberalization on the level of productivity as well as the rate of productivity growth in an R&D-based model with heterogeneous firms. We introduce new and plausible features that are absent in existing studies. First, technical progress takes the form of continual quality improvement of products over time. Second, firm entry and exit are endogenously determined due to creative destruction of products. In this framework, we demonstrate that a lower transport cost or export sunk cost unambiguously reallocates resources to R&D and top-quality product industries from low-quality good industries. This means that trade liberalization increases the rate of technical progress as well as the level of manufacturing productivity. These results are found to be robust in an extended model with population growth without scale effects.     

Technological opportunity and the growth of knowledge: A Schumpeterian approach to measurement

A model of endogenous growth, based on Schumpeter's notion of trustified capitalism, is developed and applied to firm-level data for the period 1973–1991. The model relates the market value of a firm to its current profits and to its R&D expenditures. The relationship depends upon the expected rate of knowledge growth, the expected value of an innovation and the elasticity of the R&D production function. Over the sample period, investors expected knowledge to grow at an average rate of 5 percent, a measure which reflects both process innovations and new product discoveries. Elasticities of the R&D production functions are estimated for thirteen industry groups and interpreted as measures of technological opportunity. There is no evidence of secular decline in technological opportunity over the sample period, but there is some evidence of diminishing returns to R&D intensity. Variations in technological opportunity over time are not correlated across industries. In contrast, the expected rates of knowledge growth at the industry level are highly correlated with the aggregate expected rate.     

THE PHILLIPS CURVE IN A MATCHING MODEL

Following ideas in Hume, monetary shocks are embedded in the Lagos‐Wright model in a new way: There are only nominal shocks accomplished by individual transfers that are sufficiently noisy so that realizations of those transfers do not permit the agents to deduce much about the aggregate realization. Assuming that the distribution of aggregate shocks is almost degenerate, aggregate output increases with the growth rate of the stock of money—our definition of the Phillips curve. This almost degeneracy assumption is far from being necessary; under some mild conditions, the Phillips curve result holds for a large class of distributions.     

Growth and the cycle: Creative destruction versus entrenchment

Newly estaboished firms often try to secure their market position by building up a base of loyal customers. While recessions may not destroy technological leadership, they may be harmful for such firm-customer relationships. Without such customer bases, these firms find themselves more vulnerable to attacks by competitors. We formulate this idea within an Aghion-Howitt-type model of creative destruction and discuss its implications for growth. In the context of this model, recessions might be good for growth since they weaken the incumbent firm's position and, thereby, stimulate research by outside firms. The model allows for the extreme case where the leading firm can be so entrenched that growth ceases, unless a recession shakes up its customer base. We find a one-to-one relationship between the average growth rate and the cyclical variability, a U-shaped relationship between the average speed of building up good customer relationships and the average growth rate, and a positive relationship between the arrival rate of recessions and average growth. It is finally shown that an appropriate stochastic tax program can implement the social planner's solution. In some cases, general-equilibrium effects may generate interesting results, conflicting with intuition from a partial-equilibrium approach: we show that, in some cases, a social planner might want to subsidize research in order to discourage it.     

Creative capital,information and communication technologies,and economic growth in smart cities

ABSTRACT

We study aspects of economic growth in a stylized smart city with two distinct features. First, the modeled inhabitants of this city are smart because they possess skills. Using the language of Richard Florida, these inhabitants comprise the city’s creative class and hence they possess creative capital. Second, the city is smart because it uses information and communication technologies (ICTs) and we model one specific kind of ICT use. In this setting, we first derive expressions for three growth related metrics. Second, we use these metrics to show that the economy of smart city A converges to a balanced growth path (BGP). Third, we compute the growth rate of output per effective creative capital unit on this BGP. Fourth, we study how heterogeneity in initial conditions affects outcomes on the BGP by introducing a second smart city B into the analysis. At time t?=?0 two key savings rates in city A are twice as large as in city B. We compute the ratio of the BGP value of income per effective creative capital unit in city A to its value in city B. Finally, we compute the ratio of the BGP value of skills per effective creative capital unit in city A to its value in city B.     

Creative destruction with on-the-job search

This paper studies the consequences of creative destruction on unemployment in a frictional labor market with on-the-job search. For a benchmark calibration, a 1% increase in growth raises the unemployment rate by 1.72 percentage points in the economy without on-the-job search and by only 0.07 percentage points with on-the-job search. Rather than contributing to unemployment through more frequent job separations, in the presence of on-the-job search, creative destruction induces a direct reallocation of workers from low to high productivity jobs.     

Innovation waves,self-organized criticality and technological convergence

The purpose of this paper is to investigate the evolutionary process of imitation and innovation as a process of searching in a given neighbourhood of firms. The spreading of information through neighbourhoods allows firms to acquire knowledge leading to innovation waves followed by imitation as firms attempt to glean information on best practise techniques. Whilst innovators are temporarily allowed to reap quasi rents, the imitative band wagon effect drives the profit rate down to its normal level. Productivity growth lowers the prices of sectors involved in the process of technological advance, causing obsolescence and creative destruction in a Schumpeterian sense.     

产品种类扩大、质量提升及创造性破坏

本文以最终产品种类扩大刻画横向的多样性创新,而中间产品质量提升为纵向的质量改进创新,并分析种类扩大与质量提升的创新中蕴涵的创造性破坏效应.借用数论结论探讨了多样性和质量改进之间的替代选择,并分析厂商在扩大种类和提升质量之间的创新决策.两种形式的创新都有创造性破坏效应,而多样性的创新具有间接的增长效应,质量提升的创新具有直接的增长效应.邮电行业及其相关产品的变更证实了创造性破坏效应及增长效应.