Innovation, Competition and Growth: A Schumpeterian Perspective on Canada’s Economy

To sustain growth, Canada must engage in a never-ending process of economic development and transformation. To do so, new growth theory indicates that Canada should ensure that competition policy boosts innovation, beware of further extending patent protection, and welcome international trade and technological change.economic growth, innovation policy

A Model of Growth Through Creative Destruction

This paper develops a model based on Schumpeter's process of creative destruction. It departs from existing models of endogenous growth in emphasizing obsolescence of old technologies induced by the accumulation of knowledge and the resulting process or industrial innovations. This has both positive and normative implications for growth. In positive terms, the prospect of a high level of research in the future can deter research today by threatening the fruits of that research with rapid obsolescence. In normative terms, obsolescence creates a negative externality from innovations, and hence a tendency for laissez-faire economies to generate too many innovations, i.e too much growth. This "business-stealing" effect is partly compensated by the fact that innovations tend to be too small under laissez-faire. The model possesses a unique balanced growth equilibrium in which the log of GNP follows a random walk with drift. The size of the drift is the average growth rate of the economy and it is endogenous to the model ; in particular it depends on the size and likelihood of innovations resulting from research and also on the degree of market power available to an innovator.

R&D, Implementation and Stagnation: A Schumpeterian Theory of Convergence Clubs

We construct a Schumpeterian growth theory consistent with the divergence in per-capita income that has occurred between countries since the mid 19th Century, and with the convergence that occurred between the richest countries during the second half of the 20th Century. The theory assumes that technological change underwent a transformation late in the 19th Century, associated with modern R&D labs. Countries sort themselves into three groups. Those in the highest group converge to a steady state where they do leading edge R&D, while those in the intermediate group converge to a steady state where they implement technologies developed elsewhere. Countries in both of these groups grow at the same rate in the long run, as a result of technology transfer, but inequality between them increases during the transition. Countries in the lowest group grow at a slower rate, with relative incomes that fall asymptotically to zero. Once modern R&D has been introduced, a country may have only a finite window of opportunity in which to introduce the institutions that support it.