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The product innovation process and GDP dynamics
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
... 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). ...
Purpose
The level of R&D spending of a country tends to increase the national patent rate and, in consequence, can collaborate with its economic development. However, there are a few empirical studies investigating this phenomenon by comparing countries from all over the globe. The purpose of this paper is to disassemble the sources of R&D spending and identify the role of national patent applications as a mediator in the relationship between R&D spending and national development.
Design/methodology/approach
Panel data on patent applications in 35 countries of all continents (except Africa) over 15 years (from 1999 to 2013) regarding four levels of national R&D intensity (i.e. by enterprises, governments, higher education institutions and private non-profit organisations), gross domestic product (GDP) per capita, gross national income (GNI) and human development index (HDI) were collected from the OCDE. Then, two-stage panel regressions were conducted to test the hypotheses.
Findings
The empirical findings indicated that R&D spending from firms and higher education institutions (public and private) help to directly improve national patent applications, thus contributing to the national development (measured by GDP per capita, GNI per capita and HDI).
Originality/value
The importance of this study was to show that the investments in R&D made by universities and firms are more effective in leading to patent applications, which contributes to promoting national development. With these findings, governments can focus their efforts on stimulating these types of investments if they want to foster the growth of national patent rates.
... 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. ...
This work stems from the careful consideration that Keynesian economic theory has provided fundamental contributions to economics and still acts as a stimulus in conceiving and developing new theories and methodologies. The purpose of this work is twofold. First, we highlight how the finance motive is central to Keynes's vision of the economy and how it has affected the work of Augusto Graziani and Hyman Minsky. Second, we build an agent-based model where the finance motive has a crucial role. Our agent-based model is based on a methodology aiming to provide alternative microfoundations to relevant economic mechanisms still not adequately represented in the prevailing economic theory. To this aim, we perform a discover-driven research where heterogeneous artificial agents' behaviours are induced from economic experiments. We build artificial agents able to self replicate experimental subjects' behaviour. The aggregate and disaggregate outcomes of the model are then investigated to identify the role of entrepreneurs' financial decisions in facing aggregate negative events or in generating endogenous business cycles.
This paper examines the influence that the age of a firm has on the probability of product innovation by taking into account two factors: the role of the CEO’s tenure and the lifecycle of the last product introduced. In a sample of Italian manufacturing firms (n = 2163), analysis reveals that the new entrants’ high innovative activity is mainly driven by the new CEO’s innovation propensity, which is strictly dependent on his tenure. Likewise, the lower innovation activity observed in mature firms is mostly explained by the dynamics of the product’s lifecycle and the CEO’s tenure. More generally, the existence of a negative relationship between innovation and firm age is questioned, as controlling for time-related variables that overlap during the company’s lifecycle —product age and CEO’s tenure — turns the relationship positive. Finally, the innovative behavior of incumbent companies turns out to be dependent on the renewal abilities of newly appointed external CEOs, whereas CEOs from within the family play a minor role.
In this paper we provide a prototype Multi-Agent macroeconomic system where artificial agents' behavioral rules are calibrated using human behaviors. The artificial representation of humans, i.e. "molded'' avatars, derives from a two steps process. The first step consists in performing laboratory experiments in order to gather microeconomic data. The second relies on the use of data mining heuristic techniques on the experimental data which allow for the identification of the behavioral models that better approximate humans' behaviors. The implementation of these techniques, which we call microeconomic calibration, leads to the identification of heterogeneous agents. We maintain that the Multi-Avatar systems which arise from the heterogeneous microeconomic calibrated agents give the possibility to improve the existing Agent-based models. The proposed approach will generate consequently more reliable policies evaluation tools. The model discussed in the paper is motivated by the investigation on the role of entrepreneurs' financial decisions over the business cycle. This topic was addressed especially by Hyman Minsky since the Fifties and recently gained a new momentum in the scientific community after the onset of the financial crisis.
We show that certain extended dissipative dynamical systems naturally evolve into a critical state, with no characteristic time or length scales. The temporal ''fingerprint'' of the self-organized critical state is the presence of flicker noise or 1/f noise; its spatial signature is the emergence of scale-invariant (fractal) structure.
A dynamic model of demand compatible with a changing composition of the economic system is presented in this paper. Consumers
are not expected to have completely formed preferences for radically new objects of consumption. Consumers adopt new goods
or services ,created by innovation, only if three barriers are overcome: 1) a critical (minimum) level of income, 2) critical
human capital, 3) critical fitness. However, even a new good or service with a fitness higher than that of pre-existing ones,
will not be immediately adopted. Consumers'.limited knowledge will slow down the rate of adoption of any new good or service.
In this paper, we study the relationship between competition and economic growth using a model of economic development through
the creation of new sectors. In our model, competition has both an intra- and an inter-sector component. We find that the
best conditions for economic development are achieved when a suitable ratio of inter- to intra-sector competition is achieved.
This ratio constitutes a compromise between providing a temporary monopoly to the first entrepreneur (low inter-sector competition)
and creating enough imitation to expand the sector (intra-sector competition).
The paper analyses some general dynamic properties of industries characterized by heterogeneous firms and continuing stochastic entry. After a brief critical assessment of some significant drawbacks of recent contributions to modeling of stochastic industrial dynamics, we propose a novel analytical apparatus able to derive some generic properties of the underlying competition process combining persistent technological heterogeneity, differential growth of individual firms and turnover. The basic model, we suggest, is indeed applicable with proper modifications to a large class of evolutionary processes, well beyond industrial dynamics. Copyright Springer-Verlag Berlin/Heidelberg 2003
A dynamic model of demand compatible with a changing composition of the economic system is presented in this paper. Consumers are not expected to have completely formed preferences for radically new objects of consumption. Consumers adopt new goods or services ,created by innovation, only if three barriers are overcome: 1) a critical (minimum) level of income, 2) critical human capital, 3) critical fitness. However, even a new good or service with a fitness higher than that of pre-existing ones, will not be immediately adopted. Consumers'.limited knowledge will slow down the rate of adoption of any new good or service.
In this paper we examine Australian data on national and regional employment numbers, focusing in particular on whether there have been common national and regional changes in the volatility of employment. A subsidiary objective is to assess whether the results derived from traditional growth rate models are sustained when alternative filtering methods are used. In particular, we compare the results of the growth rate models with those obtained from Hodrick-Prescott models. Using frequency filtering methods in conjunction with autoregressive modeling, we show that there is considerable diversity in the regional pattern of change and that it would be wrong to suppose that results derived from the aggregate employment series are generally applicable across the regions. The results suggest that the so-called great moderation may have been less extensive than aggregate macro studies suggest.
This paper analyses the properties and outcomes of competitive dynamics in industries characterized by heterogeneous firms and continuing stochastic entry. In that setting aggregate economic variables -- such as prices, quantities and indirectly distributive shares -- are interpreted as stemming from an explicitly dynamic process combining persistent technological heterogeneity, di#erential growth of individual firms and turnover. The idea in its essence is certainly not new: indeed it is quite germane to the view of the competitive process held by classical economists and, later, in diverse fashions, by Marshall and Schumpeter. Just think for example of the classical view of prices and profits as attracted by their "normal" level by inflows/outflows of investment, or, conversely, of the famous Marshallian metaphor of industries as "forests" with young, mature and dying trees. However, the static bias of a lot of contemporary work has also meant the neglect of these early dynamic intuitions. This certainly applies to General Equilibrium Analysis, but also to some extent to traditional industrial organizational economics. While it is true that in the "Structure -- Conduct -- Performance" (SCP) paradigm entry and entry barriers play a prominent role, it is equally true that the analysis, if not entirely static is at least ahistorical: dates and sequences of events have no visible importance
This book gives a detailed mathematical and statistical analysis of the cointegrated vector autoregresive model. This model had gained popularity because it can at the same time capture the short-run dynamic properties as well as the long-run equilibrium behaviour of many non-stationary time series. It also allows relevant economic questions to be formulated in a consistent statistical framework. Part I of the book is planned so that it can be used by those who want to apply the methods without going into too much detail about the probability theory. The main emphasis is on the derivation of estimators and test statistics through a consistent use of the Guassian likelihood function. It is shown that many different models can be formulated within the framework of the autoregressive model and the interpretation of these models is discussed in detail. In particular, models involving restrictions on the cointegration vectors and the adjustment coefficients are discussed, as well as the role of the constant and linear drift. In Part II, the asymptotic theory is given the slightly more general framework of stationary linear processes with i.i.d. innovations. Some useful mathematical tools are collected in Appendix A, and a brief summary of weak convergence in given in Appendix B. The book is intended to give a relatively self-contained presentation for graduate students and researchers with a good knowledge of multivariate regression analysis and likelihood methods. The asymptotic theory requires some familiarity with the theory of weak convergence of stochastic processes. The theory is treated in detail with the purpose of giving the reader a working knowledge of the techniques involved. Many exercises are provided. The theoretical analysis is illustrated with the empirical analysis of two sets of economic data. The theory has been developed in close contract with the application and the methods have been implemented in the computer package CATS in RATS as a result of a rcollaboation with Katarina Juselius and Henrik Hansen.
Schumpeterian growth is a particular type of economic growth that is based on the endogenous introduction of new products and/or processes and is governed by the process of creative destruction described by Joseph Schumpeter (1942). This paper provides an exposition of the scale-effects property in the context of Schumpeterian growth models. In particular, the paper outlines the three distinct solutions to the scale-effects problem, discusses their implications and offers an assessment of scale-invariant Schumpeterian growth models.
Derived from the 2001 Santa Fe Institute Conference, "The Economy as an Evolving Complex System III," represents scholarship from the leading figures in th area of economics and complexity. The subject, a perennial centerpiece of the SFI program of studies has gained a wide range of followers for its methods of employing empirical evidence in the development of analytical economic theories. Accordingly, the chapters in this volume addresses a wide variety of issues in the fields of economics and complexity, accessing eclectic techniques from many disciplines, provided that they shed light on the economic problem. Dedicated to Kenneth Arrow on his 80th birthday, this volume honors his many contributions to the Institute. SFI-style economics is regarded as having had an important impact in introducing a new approach to economic analysis. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780195162592/toc.html
Advanced economies have experienced a tremendous increase in material well-being since the industrial revolution. Modern innovations such as personal computers, laser surgery, jet airplanes, and satellite communication have made us rich and transformed the way we live and work. But technological change has also brought with it a variety of social problems. It has been blamed at various times for increasing wage and income inequality, unemployment, obsolescence of physical and human capital, environmental deterioration, and prolonged recessions. To understand the contradictory effects of technological change on the economy, one must delve into structural details of the innovation process to analyze how laws, institutions, customs, and regulations affect peoples' incentive and ability to create new knowledge and profit from it. To show how this can be done, Philippe Aghion and Peter Howitt make use of Schumpeter's concept of creative destruction, the competitive process whereby entrepreneurs constantly seek new ideas that will render their rivals' ideas obsolete. Whereas other books on endogenous growth stress a particular aspect, such as trade or convergence, this book provides a comprehensive survey of the theoretical and empirical debates raised by modern growth theory. It develops a powerful engine of analysis that sheds light not only on economic growth per se, but on the many other phenomena that interact with growth, such as inequality, unemployment, capital accumulation, education, competition, natural resources, international trade, economic cycles, and public policy.
In this paper, we study the relationship between competition and economic growth using a model of economic development through
the creation of new sectors. In our model, competition has both an intra- and an inter-sector component. We find that the
best conditions for economic development are achieved when a suitable ratio of inter- to intra-sector competition is achieved.
This ratio constitutes a compromise between providing a temporary monopoly to the first entrepreneur (low inter-sector competition)
and creating enough imitation to expand the sector (intra-sector competition).
This paper proposes an extension of the inventory production model developed in Bak, Chen, Scheinkman, and Woodford (BCSW,
1993). We show how the Pareto-Levy type of aggregate distributions emerge in global models as well as in local models. We
extend the BCSW model by allowing random connections between firms. The distribution of production in the economy follows
a power law probability distribution. In addition, the long-run frequency distribution follows the same law.
KeywordCritical state, self-organization, self-similarity, global interaction, stable laws
In the standard literature, the fundamental factor restraining economic growth is diminishing returns to capital in production or R&D technology. This paper presents a model in which the factor restraining growth is saturation of demand for individual consumption good. The economy sustains growth through the introduction of new products/industries. The new products/industries create high growth of demand. By so doing, they elicit capital accumulation, and ultimately sustain economic growth. The model demonstrates the importance of demand-creating innovations which are different from the standard measure of technical progress, namely total factor productivity.
This paper illustrates how fluctuations in aggregate economic activity can result from many small, independent shocks to individual sectors. The effects of the small independent shocks fail to cancel in the aggregate due to the presence of two non-standard assumptions: local interaction between productive units (linked by supply relationships), and non-convex technology. We also argue that neither feature on its own would suffice. In the case of a simple model, we explicitly calculate the distribution of aggregate activity in the limit of an infinite number of independently disturbed sectors.
This paper examines the link between growth and business cycles by incorporating Schumpeterian growth into an otherwise standard real business cycle (RBC) model. We ask whether Schumpeter's creative destruction process can generate realistic business cycles. We solve the model, generate artificial time series, and compare statistical properties of these series with their historical counterparts.In our approach, the trend component is included in our artificial series just as it is in the data. Hence, we are not tied to any particular filtering method for our comparisons.We find that Schumpeterian fluctuations alone can generate time series that match key moments from U.S. data. We also find, however, that a model with both Schumpeterian and standard RBC shocks performs better.
This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection as well as empirical evidence on the effects of patent rights. Then, the second part considers the international aspects of IPR protection. In summary, this paper draws the following conclusions from the literature. Firstly, different patent policy instruments have different effects on R&D and growth. Secondly, there is empirical evidence supporting a positive relationship between IPR protection and innovation, but the evidence is stronger for developed countries than for developing countries. Thirdly, the optimal level of IPR protection should tradeoff the social benefits of enhanced innovation against the social costs of multiple distortions and income inequality. Finally, in an open economy, achieving the globally optimal level of protection requires an international coordination (rather than the harmonization) of IPR protection.
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Most recent empirical analyses of aggregate economic fluctuations rely on the implicit assumption that business cycles are all alike. This paper investigates this assumption for the long-run international data set of Backus and Kehoe and presents the results of statistical tests of the 'representative cycle' hypothesis. Findings show that there is substantial heterogeneity across individual cycles and phases in terms of duration, amplitude, and co-movements between variables, and that such heterogeneity is generally statistically significant. These results underline, at an empirical level, the limitations of measuring business cycles in terms of sample second moments, and, at a theoretical level, the difficulties of developing theories providing a unified explanation of the business cycle.
The contribution deals with a nonlinear dynamic macro-economic model which is used for simulation runs. Conditions and model specifications allowing for global stability are investigated and tested. Based on this some well-known facts as Schumpeterian long-wave phenomena, Keynesian unemployment, productivity growth effects are simulated. Moreover specifying an instrumental variable for state interventions policy issues are also discussed. With this runs it is shown that minor changes of parameters may provide totally different outcomes and different economic developments.
This paper distinguishes two types of asymmetry in business cycles: deepness and steepness. Deepness is defined as the characteristic that troughs are further below trend than peaks are above. Most previous research has focused exclusively on steepness, which refers to cycles in which contractions are steeper than expansions. A test for deepness is proposed and applied to U.S. postwar quarterly unemployment, real GNP, and industrial production. Evidence of deepness is found for unemployment and industrial production, while the evidence for real GNP is weaker. Previous evidence of steepness in unemployment is confirmed. Copyright 1993 by Oxford University Press.
The Real Business Cycle (RBC) research program has grown spectacularly over the last decade, as its concepts and methods have diffused into mainstream macroeconomics. Yet, there is increasing skepticism that technology shocks are a major source of business fluctuations. This chapter exposits the basic RBC model and shows that it requires large technology shocks to produce realistic business cycles. While Solow residuals are sufficiently volatile, these imply frequent technological regress. Productivity studies permitting unobserved factor variation find much smaller technology shocks, suggesting the imminent demise of real business cycles. However, we show that greater factor variation also dramatically amplifies shocks: a RBC model with varying capital utilization yields realistic business cycles from small, nonnegative changes in technology.
This paper presents a simple R&D-driven endogenous growth model to shed light on some puzzling economic trends. The model can account for why patent statistics have been roughly constant even though R&D employment has risen sharply over the last thirty years. The model also illuminates why steadily increasing R&D effort has not led to any upward trend in economic growth rates, as is predicted by earlier R&D-driven endogenous growth models with the 'scale effect' property. Copyright 1998 by American Economic Association.
A dynamic stochastic model for a competitive industry is developed in which entry, exit, and the growth of firms' output and employment is determined. The paper extends long-run industry equilibrium theory to account for entry, exit, and heterogeneity in the size and growth rate of firms. Conditions under which there is entry and exit in the long run are developed. Cross sectional implications and distributions of profits and value of firms are derived. Comparative statics on the equilibrium size distribution and turnover rates are analyzed. Copyright 1992 by The Econometric Society.
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