1

TECHNOLOGICAL CHANGE AND ECONMIC GROWTH: NEOCLASSICAL AND NEO-SCHUMPETERIAN MODELS

2

Traditional neoclassical models assume a process of absolute convergence towards an equilibrium level of per capita GDP (steady-state)

However, for endogenous growth models, countries with different initial conditions (technological knowledge, human capital) may converge to different levels of GDP (conditional convergence or convergence clubs)

Neo-schumpeterian or evolutionary models discard the idea of steady-state equilibria. In their disequilibrium framework the catching up cannot be taken for granted. The leading countries can shift forward the technological frontier as well as laggard countries can further fall behind: Moses Abramovitz (1986) Catching up, Forging ahead, and Falling behind

3

NEOCLASSICAL OLD (SOLOW MODEL)

NEOCLASSICAL NEW (ENDOGENOUS

GROWTH)

NEO-SCHUMPETERIAN/EVOLUTIONARY

Technology as information (exogenous, free good)

Technology as knowledge (increasing returns)

Technology as(codified and tacit) knowledge

Equilibrium Multiple equilibria Disequilibrium

Dynamic analysis of steady state

Dynamic analysis of steady states

Dynamic analysis with discontinuities and cumulativeness (path-dependence)

Absolute convergence Conditional convergence Convergence and Divergence

4

Joseph Alois Schumpeter (1883-1950)

• Born in Moravia (then part of Austria-Hungary, now Czech Republic). From 1925-32, he held a chair at the University of Bonn. With the rise of Nazism, he moved to Harvard where he taught from 1932 until his death in 1950

• Schumpeter Mark I: Theory of Economic Development (published in German in 1911)

• Economic development as a discontinuous (out of equilibrium) process due to introduction of innovations.

• The crucial role of innovating entrepreneurs (and bankers!)

5

6

7

8

Joseph Alois Schumpeter (1883-1950)• Schumpeter Mark II: Capitalism, Socialism and Democracy

(1942, published in the US)• The inventive activity is endogenous: large companies carry

our R&D activities and are not obstacles but drivers of technological change and economic development.

• Chapter 7: The process of creative destruction (nice oxymoron!)

• Capitalism is an evolutionary process that can never be stationary (criticism to the concept of steady state equilibrium). [Biological metaphor of “mutation” versus the Newtonian physics’ metaphor of neoclassical economists]

• The fundamental impulse is the introduction of radical innovations

9

10

11

Moses Abramovitz (1986) Catching Up, Forging Ahead and Falling Behind, Journal of Economic History

Catch-up hpothesis: being backward in level of productivity carries a potential for rapid advance. The growth rates of productivity in the long-run tend to be inversely related to the intial levels

The crucial role of “social capability” (for effective economic advance)

“A country’s potential for rapid growth is strong not when it is backward without qualification, bur rather when it is technological backward but socially advanced”.

“The trouble with absorbing social capability into the catch-up hpothesis is that no one knows just what it means and how to measure it.”(p. 388)

12

Moses Abramovitz (1986) Catching Up, Forging Ahead and Falling Behind, Journal of Economic History

Tentative way: education (technical competence) + quality of political/industrial/financial institutions

Only catching up? No, also falling behind (UK vs. US) and moving ahead (Japan in the 1980s)

“There are, however, still more solid grounds for a renewal of productivity advance in both Europe and the United States. These are their high level of general and technical education, the broad bases of their science, and the well-established connections of their science, technology, and industry. These elements of social capability are slow to develop but also, it seems very likely, slow to decay” (p. 405)

13

Labour productivity (GDP per hour worked) 2005 and average annual real growth 2000-2005

Convergence between the East and the West.

Divergence between the South and the

North

Moving ahead

Catching up

Losing momentum

Falling further behind

14