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

Appropriate growth policy: a unifying framework

In this lecture, we use Schumpeterian growth theory, where growth comes from quality-improving innovations, to elaborate a theory of growth policy and to explain the growth gap between Europe and the US. Our theoretical apparatus systematizes the case-by-case approach to growth policy design. The emphasis is on three policy areas that are potentially relevant for growth in Europe, namely: competition and entry, education, and macropolicy. We argue that higher entry and exit (higher firm turnover) and increased emphasis on higher education are more growth-enhancing in countries that are closer to the technological frontier. We also argue that countercyclical budgetary policies are more growth-enhancing in countries with lower financial development. The analysis thus points to important interaction effects between policies and state variables, such as distance to frontier or financial development, in growth regressions. Finally, we argue that the other endogenous growth models, namely the AK and product variety models, fail to account for the evidence on the relationship between competition, education, volatility, and growth, and consequently cannot deliver relevant policy prescriptions in the three areas we consider

MULTIPERIOD OPTIMIZATION: DYNAMIC PROGRAMMING VS. OPTIMAL CONTROL: DISCUSSION

Research Methods/ Statistical Methods,

The economics of growth

This comprehensive introduction to economic growth presents the main facts and puzzles about growth, proposes simple methods and models needed to explain these facts, acquaints the reader with the most recent theoretical and empirical developments, and provides tools with which to analyze policy design. The treatment of growth theory is fully accessible to students with a background no more advanced than elementary calculus and probability theory; the reader need not master all the subtleties of dynamic programming and stochastic processes to learn what is essential about such issues as cross-country convergence, the effects of financial development on growth, and the consequences of globalization. The book, which grew out of courses taught by the authors at Harvard and Brown universities, can be used both by advanced undergraduate and graduate students, and as a reference for professional economists in government or international financial organizations

DROUGHT, STRIFE, AND INSTITUTIONAL CHANGE

Institutional and Behavioral Economics, Risk and Uncertainty,

When does domestic saving matter for economic growth?

Can a country grow faster by saving more? We address this question both theoretically and empirically. In our model, growth results from innovations that allow local sectors to catch up with the frontier technology. In relatively poor countries, catching up with the frontier requires the involvement of a foreign investor, who is familiar with the frontier technology, together with effort on the part of a local bank, who can directly monitor local projects to which the technology must be adapted. In such a country, local saving matters for innovation, and therefore growth, because it allows the domestic bank to cofinance projects and thus to attract foreign investment. But in countries close to the frontier, local firms are familiar with the frontier technology, and therefore do not need to attract foreign investment to undertake an innovation project, so local saving does not matter for growth. In our empirical exploration we show that lagged savings is significantly associated with productivity growth for poor but not for rich countries. This effect operates entirely through TFP rather than through capital accumulation. Further, we show that savings is significantly associated with higher levels of FDI inflows and equipment imports and that the effect that these have on growth is significantly larger for poor countries than rich

Spatial Disaggregation of Agricultural Production Data

In this paper we develop a dynamic data-consistent way for estimating agricultural land use choices at a disaggregate level (district-level), using more aggregate data (regional-level). The disaggregation procedure requires two steps. The first step consists in specifying and estimating a dynamic model of land use at the regional level. In the second step, we disaggregate outcomes of the aggregate model using maximum entropy (ME). The ME disaggregation procedure is applied to a sample of California data. The sample includes 6 districts located in Central Valley and 8 possible crops, namely: Alfalfa, Cotton, Field, Grain, Melons, Tomatoes, Vegetables and Subtropical. The disaggregation procedure enables the recovery of land use at the district-level with an out-sample prediction error of 16%. This result shows that the micro behavior, inferred from aggregate data with our disaggregation approach, seems to be consistent with observed behavior.Disaggregation, Bayesian method, Maximum entropy, Land use, Production Economics, C11, C44, Q12,