The dynamic effects of general purpose technologies on Schumpeterian growth

General purpose technologies (GPTs) are drastic innovations characterized by pervasiveness in use and innovational complementarities. The dynamic effects of a GPT are analyzed within a quality-ladders model of scale-invariant Schumpeterian growth. The diffusion path of a GPT across a continuum of industries is governed by S-curve dynamics. The model generates a unique, saddle-path long-run equilibrium. Along the transition path, the measure of industries that adopt the new GPT increases, consumption per capita falls, and the interest rate rises. The growth rate of the stock market depends negatively on the rate of GPT diffusion and the magnitude of the GPT-ridden R&D productivity gains; and positively on the rate of population growth. It also follows a U-shaped path during the diffusion process of the new GPT. Finally, the model generates transitional growth cycles of per capita GNP.JEL Classification: E3, O3, O4I would like to thank Elias Dinopoulos for encouragement, and for constructive comments and suggestions. I would also like to thank David Figlio, Douglas Waldo, Steven Slutsky and participants in the 9th Biennial Congress of the International Schumpeter Society for useful discussions and suggestions. Any remaining errors are my own responsibility.     

Scale effects in endogenous growth theory: an error of aggregation not specification

Modern Schumpeterian growth theory focuses on the product line as the main locus of innovation and exploits endogenous product proliferation to sterilize the scale effect. The empirical core of this theory consists of two claims: (i) growth depends on average employment (i.e., employment per product line); (ii) average employment is scale invariant. We show that data on employment, R&D personnel, and the number of establishments in the US for the period 1964–2001 provide strong support for these claims. While employment and the total number of R&D workers increase with no apparent matching change in the long-run trend of productivity growth, employment and R&D employment per establishment exhibit no long-run trend. We also document that the number of establishments, employment and population exhibit a positive trend, while the ratio employment/establishment does not. Finally, we provide results of time series tests consistent with the predictions of these models.     

Terrorism and its impact on economic growth and technological innovation

Recent terrorist acts, in particular the 9-11 attacks in 2001, have created disruptions in the global economy. The short-term impact had been felt in the global tourism, airline industries, as well as the financial markets. While the global economy has recovered and is adjusting to the new global realities, the longer-term impact of heightened security risk across the world can be felt in the form of higher risk premiums in asset markets, as well as a shift of resources towards dealing with terrorism. Just as World War II had accelerated the development of nuclear energy as well as a major contributing factor in the genesis of Silicon Valley, the current war against terrorism will affect both the pace and trajectory of technology trends, as efforts are focused on developing technologies to combat terrorism. In this paper, we review the effects of the current war on terrorism in terms of its impact on the economy, the allocation of resources to R&D, and the trajectory of future R&D.     

The Internet,R&D expenditure and economic growth

We examine the effect of the Internet on the relationship between R&D expenditure and economic growth. Data for 105 countries over the period 1994–2014 are used for panel data analysis. The effect of R&D expenditure on economic growth proves to be affected positively by the Internet and the effect of the Internet on the economic growth is positively strengthened by an increase in R&D expenditure.     

Quality heterogeneity and global economic growth

This paper develops a fully endogenous, variety-expansion growth model with firm-specific quality heterogeneity, limit pricing, and an endogenous distribution of markups. Firms with high-quality products engage in exporting, firms with intermediate-quality products serve the domestic market, and inefficient firms with low-quality products exit the market. Trade liberalization, measured by a reduction in trade costs or a decline in foreign market entry costs, generates a reallocation of resources from low-quality to high-quality products and exit of inefficient firms. However, it has ambiguous effects on the average global quality level, long-run growth, and welfare. An increase in the rate of population growth or in the intensity of trade-related knowledge spillovers accelerates economic growth. The laissez-faire equilibrium is inefficient, and this leaves room for welfare-improving government intervention.     

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.     

Public deficits and economic growth

Considering an integrated area, this paper deals with the balance between the positive effects in the degree of economic cohesion resulting from R&D subsidies, temporarily granted from an imitator and less developed country, and the external negative effects arising from the eventual creation of excessive public deficits.We propose and numerically solve a model of a monetary union between two countries, one being innovator and the other imitator. Results suggest the pertinence of allowing for a temporary differentiation of fiscal discipline rules in favour of the less developed country. R&D subsidies granted by this country seem to lead to an easier catching-up without producing important negative external effects, also as not hurting severely the conditions for long-run sustainability of public accounts.     

Schumpeterian Growth Without Scale Effects

We incorporate population growth into the model of trustified capitalism, with vertical and horizontal product differentiation, developed by Thompson and Waldo (1994) and generate endogenous long-run Schumpeterian growth without scale effects. Our model extends the analysis of Young (1998) and overturns some key policy and welfare implications of his model. The transitional dynamics of the model can account for the presence of scale effects in preindustrial and early industrial eras.     

On the impact of innovation and inequality in economic growth

We present robust results on the empirical relationship among income inequality, innovation, and economic growth for a panel dataset of 74 countries over the period 1996–2014. We estimate pairwise causality tests to show that there is bidirectional causality between GDP per capita and R&D, while R&D causes the Gini index of income inequality, and it causes human capital. Allowing coefficients to be different across cross-sections of countries, we get in any case a pairwise bi-directionality. By dynamic panel data estimations, when regressing R&D on GDP per capita, we obtain a threshold value of 0.16% of R&D such that for values above it there is economic growth. While regressing R&D on the Gini index, we get a threshold of 0.10% of R&D above which, the income distribution begins to improve. Finally, we estimate a growth equation that depends on R&D, income inequality, and physical capital. We obtain two thresholds, one of 38.79 for the Gini (above which the economic growth decreases), and one of 0.06% for R&D such that above it, economic growth is rising.     

Lagging productivity growth: Measurement,technology, and shock effects

One of the most important problems about which economists have professional knowledge is lagging productivity growth. After illustrating some significant developments this paper addresses three questions: (1) To what extent does R&;D activity drive productivity growth, (2) how do alternative measures of productivity affect the conclusions and (3) how did the oil price shocks and the increased openness of the U.S. economy affect productivity growth? After removing the influence of the extremely dynamic computer industry, average manufacturing industry productivity in the U.S. throughout the 80s grew at a disappointing pace. And it didn't improve in the most dynamic industries. But there is good news as well. First, part of the 1970s productivity slump is clearly attributable to the 1973–74 oil price shock. Second and more important, technological innovation does not appear to have lost its power in driving productivity growth forward. Indeed there is evidence of stronger and more consistent productivity effects from R&;D investment during the 1980s, although the exact channels through which R&;D enhances manufacturing sector productivity are left in doubt. Estimates of the role inter-industry technology flows play are sensitive to aggregation and the conventions used to construct the industry price deflators underlying productivity measures.     

Rent Protection as a Barrier to Innovation and Growth

We build a model of R&D-based growth in which the discovery of higher-quality products is governed by sequential stochastic innovation contests. We term the costly attempts of incumbent firms to safeguard the monopoly rents from their past innovations rent-protecting activities. Our analysis (1) offers a novel explanation of the observation that the difficulty of conducting R&D has been increasing over time, (2) establishes the emergence of endogenous scale-invariant long-run innovation and growth, and (3) identifies a new structural barrier to innovation and growth. We also show that long-run growth depends positively on proportional R&D subsidies, the population growth rate, and the size of innovations, but negatively on the market interest rate and the effectiveness of rent-protecting activities. An unpublished version of this paper was circulated earlier under the title “Innovation and Rent Protection in the Theory of Schumpeterian Growth.” We thank an anonymous referee and seminar participants in several venues for useful comments and suggestions.     

The Long-Run Growth Effects of R&D Subsidies

This article presents a generalized versionof Howitt's (1999) model of R&D-driven growth withoutscale effects and a complete characterization of the long-rungrowth effects of R&D subsidies. R&D subsidiescan either promote or retard long-run economic growth, and surprisingly,the growth-retarding outcome occurs for a wide range of plausibleparameter values. This article also presents a new intuitiveexplanation for why R&D subsidies can have long-rungrowth effects (both positive and negative).     

Endogenous technical progress,R&D periods and durations of business cycles

How do growth and cycles interact? Endogenous growth and business cycle theories are integrated to explain business cycles over different frequencies, especially at lower frequencies, on the balanced growth path. A new variable-R&;D time period-broadens the concept of intertemporal substitution and determines the durations of the medium and long cycles. As a result, the evolution of technology is separated from short-run shocks. A more promising new invention shrinks the R&;D period since waiting is costly, which pushes up the level of economic activity and causes a boom, while a less promising new invention does the opposite. The level of economic activity in turn affects the near-term growth rate. Thus, a recession is not caused by a negative shock as in the standard real business cycle models, but can be associated with a positive, though lower, growth rate of technology. The results capture the major features of U.S. data in both time and frequency domains.     

Explaining the nonlinear effects of financial development on economic growth

Using different indicators of financial development, recent empirical studies have discovered various patterns of nonlinearity in the relationship between financial development and economic growth. By adding consumption loans, which are nonproductive, into a standard model of asymmetric information, this paper generates a model that is able to replicate all possible nonlinear finance–growth relationships found in recent empirical studies.      

A comparative analysis of the change in R&D efficiency: a case of R&D leaders in the technology industry

This paper measures the cumulative change in research and development (R&D) efficiency of globally leading R&D companies in the technology industry. We use Data Envelopment Analysis /Malmquist index to analyse 49 such companies. The change in R&D efficiency is analysed by decomposing the Malmquist index into ‘catch-up’ and ‘frontier shift’ indices, and by comparing cumulative indices to those at the starting period. Those cumulative indices are obtained at both a firm and an industry level. Results indicate that the overall R&D efficiency of these globally leading R&D companies declined slightly during the period 2007–2013. At a firm level, this study determines in detail how the trend of each firm in R&D activities differs from other companies.     

Endogenicity of economic growth models

In his celebrated 1956 article, “A Contribution to the Theory of Economic Growth,” Solow calibrated the stylized facts of economic growth observed in the Western developed countries and summed up by Kaldor. Solow reconciled steady-state rate of growth of per capita output with constant capital/output and capital/labor ratios by introducing labor augmenting technological progress and measuring physical labor time in efficiency units. A series of articles have appeared since the mid-1980s, which have substantially extended the neoclassical model of growth theory presented by Solow. Most of these are entitled endogenous in juxtaposition to Solow's model, which is considered and often labeled exogenous. The purpose of this article is to show that this dichotomy is not worthwhile by arguing that the way technological progress enters in Solow's model plays a crucial role. Moreover, the designation of a model need not depend on the way it employs just one element among others.     

Semi-endogenous versus Schumpeterian growth models: testing the knowledge production function using international data

Using various indicators of innovative activity and product variety in the OECD countries over the past century, this paper tests first- and second-generation models of economic growth. The estimation results give evidence in favour of Schumpeterian models, while the semi-endogenous growth theories are shown not to be consistent with the data.      

Synergizing independent and cooperative R&D activities: the effects of organisational slack and absorptive capacity

Firms undertaking independent and cooperative research and development (R&D) activities simultaneously often have difficulties to realise their synergistic effects. This study contends that such difficulties are caused by tensions between two types of R&D activities in terms of resource competition and knowledge leakage. Moreover, organisational slack and absorptive capacity may affect these tensions and thereby play important role in synergizing independent and cooperative R&D activities. Based on a survey data of 286 firms, this study finds that such two types of R&D activities jointly have a negative impact on firm performance. Furthermore, organisational slack aids in synergizing them, while absorptive capacity has an adverse impact. These findings enrich our knowledge on the interrelation of independent and cooperative R&D activities and shed light on how firms can synergize them.     

Political constraints to growth in an economic union

This paper studies the political economy of growth in an economic union such as the EU. In the spirit of Acemoglu, Aghion and Zilibotti [Acemoglu, D., Aghion, P. and Zilibotti, F., 2006a, Distance to frontier, selection and economic growth, Journal of the European Economic Association, 4:1, 37–74; Acemoglu, D., Aghion, P., and Zilibotti, F., 2006b, Growth, development and appropriate versus inappropriate institutions, mimeo MIT.], as the economy approaches the world technology frontier, structural reforms that increase competition in intermediate goods sectors are necessary to boost innovation and productivity growth. Reforms, however, raise the opposition of incumbents and, therefore, are politically difficult to implement. When there are important cross-border policy spillover effects, national governments are more easily captured by vested interests, as they fail to internalize the benefits of reforms on the rest of the union. In this situation, productivity growth may be sluggish and the economy can fail to converge to the frontier. On the other hand, when policy is chosen by a union government (or a collective body that takes into account union welfare), the internalization of spillovers raises the perceived benefit of reforms and, consequently, lowers the ability of lobbies to obtain high levels of protection.     

The influences of different R&D types on productivity growth in OECD countries

Productivity has become an important concern for the sustainable development and growth of a country. Countries, such as those in the Organization for Economic Cooperation Development (OECD), that actively innovate and conduct Research and Development (R&D) activities always have high productivity growth, with research to date examining the positive influences of R&D on productivity. R&D activities are classified into three types: basic research, applied research and experimental development. To test the different influences of the different R&D types, panel data from 23 OECD countries for the period 1996–2010 have been constructed and the Data Envelopment Analysis method is used to measure and decompose productivity growth. Moreover, based on Mansfield's [“Basic Research and Productivity Increase in Manufacturing.” The American Economic Review 70: 863–873] model, the influences of each R&D type on productivity growth are tested. The empirical tests show that R&D investments in experimental development and applied research have a positive effect on productivity growth in the immediate period; basic research influences productivity growth with a lengthier lag, even up to three periods.