Wage Inequality and the New Economy

Many economists have argued that the observed increase in wageinequality in developed economies over the past 30 years isdue to skill-biased technical progress. In this paper we putforward a somewhat different technology-based argument, namelythat the increased inequality was caused by technical changelinked to the pervasive innovation wave associated with theNew Economy. This technical change was not skill-biased in theusual sense, but rather raised the reward to adaptability. Thisalternative approach based on the notion of ‘general-purposetechnology’ can shed light on a number of outstandingpuzzles on the evolution of wage inequality both between andwithin educational groups.     

BEYOND SEARCH: FIAT MONEY IN ORGANIZED EXCHANGE*

A model of fiat money is constructed in which spatial separation and the logistics of communication are made explicit as in search theory, but exchange is organized by profit‐seeking business enterprises as in all market economies. Firms mitigate search costs by opening shops that are easily located. Equilibria may exist in which fiat money is used as a universal medium of exchange. When a monetary equilibrium exists, fiat money is essential. The model provides a foundation to cash‐in‐advance theory, without specifying in advance that one object will be used as the universal medium of exchange.     

The observational implications of Schumpeterian growth theory

This paper obtains and discusses alternative testable implications of the Schumpeterian theory of creative destruction for economic growth.     

Reviews

Planning in diverse societies. Healey, P. 1997: COLLABORATIVE PLANNING: SHAPING PLACES IN FRAGMENTED SOCIETIES. Basingstoke: Macmillan, £14.99 paper.

Transforming “problem” housing estates. Power, A. 1997: ESTATES ON THE EDGE. London: Macmillan, £57.50 cased.

Contested communities. Hoggett, P. (ed) 1997: CONTESTED COMMUNITIES: EXPERIENCES, STRUGGLES, POLICIES. Bristol, The Policy Press, £15.95 paper.

A planner's view of regeneration in Manchester. Kitchen, T., 1997: PEOPLE, POLITICS, POLICIES AND PLANS: THE CITY PLANNING PROCESS IN BRITAIN. London: Paul Chapman Publishing, £16.95 paper.

Urban design. Parfect, M. and Power, G. 1997: PLANNING FOR URBAN QUALITY: URBAN DESIGN IN TOWNS AND CITIES. London: Routledge, £65.00 cased, £22.50 paper.

Regional impact of the EU Structural Funds. Bachtler, J. and Turok, I. (eds) 1997: THE COHERENCE OF EU REGIONAL POLICY: CONTRASTING PERSPECTIVES ON THE STRUCTURAL FUNDS. London: Jessica Kingsley Publishers, £25.00 paper.

Development trusts. Ward M. and Watson, S. 1997: HERE TO STAY: A PUBLIC POLICY FRAMEWORK FOR COMMUNITY-BASED REGENERATION. London: Development Trusts Association, Joseph Rowntree Foundation, £10.95 paper.

Hart, L. 1997: ASSET BASE DEVELOPMENT FOR COMMUNITY-BASED REGENERATION ORGANISATIONS. London: Development Trusts Association, £6,50 paper.

Community visioning. Burton, B. 1997: COMMUNITY VISIONING: AN EVALUATION OF THE “CHOICES FOR BRISTOL” PROJECT. Bristol: Policy Press, £11.95 paper.     

Competition, Imitation and Growth with Step-by-Step Innovation

Is more intense product market competition and imitation good or bad for growth? This question is addressed in the context of an endogenous growth model with "step-by-step" innovations, in which technological laggards must first catch up with the leading-edge technology before battling for technological leadership in the future. In contrast to earlier Schumpeterian models in which innovations are always made by outsider firms who earn no rents if they fail to innovate and become monopolies if they do innovate, here we find: first, that the usual Schumpeterian effect of more intense product market competition (PMC) is almost always outweighed by the increased incentive for firms to innovate in order to escape competition, so that PMC has a positive effect on growth; second, that a little imitation is almost always growth-enhancing, as it promotes more frequent neck-and-neck competition, but too much imitation is unambiguously growth-reducing. The model thus points to complementary roles for competition (anti-trust) policy and patent policy.     

Research and development in the growth process

This paper introduces into Schumpeterian growth theory an important element of heterogeneity in the structure of innovative activity—namely, the distinction between research and development. We construct a simple model of growth to investigate how the (steady-state) rate of growth affects and is affected by the relative mix between research and development. Although we assume for simplicity that the total supply of innovative activity is given it turns out that, with one important exception, the growth rate responds to most parameter changes in the same way as in previous models where growth was determined by the total amount of innovative activity. In particular, the level of research tends to covary positively with the rate of growth, even in the extreme case where the general knowledge that underlies long-run growth is created only by secondary innovations arising from the development process. The exception concerns the effects of competition on growth. Although simpler Schumpeterian growth models implied that increased competition would reduce growth by reducing the incentive to innovate, introducing the distinction between research and development implies that this effect is likely to be reversed.     

Testing creative destruction in an opening economy

This paper analyses the relationship between trade liberalization and economic growth using a Schumpeterian framework of technological innovation and applies it to sector‐level South African data. The framework examines direct and indirect effects of trade liberalization on productivity growth. Indirect impacts operate through a differential impact of trade liberalization on firms conditional on their distance from the international technological frontier. Results confirm positive direct impacts of trade liberalization. Results confirm also that the greatest positive impact of trade liberalization will be on sectors that are close to the international technological frontier and that experienced a low level of product market competition before liberalization.