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Abstract

In this paper, we explain GDP dynamics through an analysis of the forces that modify the structure of the economy. These forces are represented by the entry of new firms and product innovations. Our model is inspired by Bak’s sand pile model, and the entry of a new firm or innovation is comparable to dropping a grain of sand in Bak’s model. The resulting model involves the insights of both Keynes and Schumpeter. It could be defined as Keynesian because the aggregate output is demand driven. That said, the model can mainly be labeled as Schumpeterian for several reasons: (i) innovations have a key role, (ii) credit is involved in supporting the innovation process, (iii) innovations partially destroy old industries, and finally (iv) without innovations, the system gradually approaches its stationary state. In this simple model, the change in the number of sectors (products) of the economy is the decisive factor with the following results: (1) the aggregate production has an increasing trend; (2) fluctuations are asymmetric; (3) recessions have a “creative destruction” explanation; (4) “classical” cycles are gradually replaced by “growth” cycles. KeywordsProduct variety–Schumpeterian–Growth–Fluctuations–Out of equilibrium macroeconomic dynamics–Sand pile model

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... Although this scarcity of studies on this topic is real, several authors have investigated this relationship at the country or regional level. One of the most used measures for regional or national development is the absolute growth of GDP or GDP per capita (Ahlstrom, 2010;Galindo & Méndez, 2014;Giulioni, 2011;Heidenreich, 2009;Howells, 2005;Kiselitsa, Shilova, & Liman, 2017). Other authors considered alternative proxies, such as Gini index, which calculates the income distribution of the population (Galindo & Méndez, 2014), unemployment rate (Moutinho et al., 2015;Smit, 2017), gross value added Levers of national development (Moutinho et al., 2015), capital stock, foreign direct investments and human capital (Capello & Lenzi, 2016). ...
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... It is well recognised that a firm's innovative activity can be proxied by the release of a new product (Giulioni, 2011). New products summarie the innovation ability of firms that consists of searching, identifying and evaluating alternative knowledge from different sources. ...
... To determine the level of demand for each artificial agent we follow Giulioni (2011). First, demand depends on households' income. ...
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