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Institutions as the Fundamental Cause of Long-Run Growth
- IN HANDBOOK OF ECONOMIC GROWTH, ED. PHILIPPE AGHION AND STEPHEN DURLAUF
, 2005
"... This paper develops the empirical and theoretical case that differences in economic institutions are the fundamental cause of differences in economic development. We first document the empirical importance of institutions by focusing on two “quasi-natural experiments” in history, the division of K ..."
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Cited by 458 (9 self)
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This paper develops the empirical and theoretical case that differences in economic institutions are the fundamental cause of differences in economic development. We first document the empirical importance of institutions by focusing on two “quasi-natural experiments” in history, the division of Korea into two parts with very different economic institutions and the colonization of much of the world by European powers starting in the fifteenth century. We then develop the basic outline of a framework for thinking about why economic institutions differ across countries. Economic institutions determine the incentives of and the constraints on economic actors, and shape economic outcomes. As such, they are social decisions, chosen for their consequences. Because different groups and individuals typically benefit from different economic institutions, there is generally aconflict over these social choices, ultimately resolved in favor of groups with greater political power. The distribution of political power in society is in turn determined by political institutions and the distribution of resources. Political institutions allocate de
Innovation by leaders
- Economic Journal
, 2004
"... A new rationale for the persistence of monopolies is based on a precommitment of the incumbent monopolist to invest in R&D. In a patent race, as long as entry is free, the Arrow effect disappears: the incumbent has more incentives to invest than any outsider. Paradoxically, a market with some pe ..."
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Cited by 76 (7 self)
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A new rationale for the persistence of monopolies is based on a precommitment of the incumbent monopolist to invest in R&D. In a patent race, as long as entry is free, the Arrow effect disappears: the incumbent has more incentives to invest than any outsider. Paradoxically, a market with some persistence of monopoly is competitive, while one with continuous leap-frogging must hide some barriers to entry. When the size of innovations is endogenous, leaders invest in more radical innovations. If there is a sequence of innovations, cycling investment emerges. Finally, I apply the idea to a general equilibrium model of Schumpeterian growth with persistence of monopoly. Who does research? Overwhelming evidence tells us that incumbent monopolists do a lot of research and their leadership persists through a number of innovations. This persistence of the monopolistic position drives the incentives to invest in Research & Development and indirectly enhances aggregate growth. Nevertheless the industrial organisation theory of innovation since the pathbreaking contri-bution of Arrow (1962) and the macroeconomic theory of Schumpeterian growth started by Aghion and Howitt (1992) do not provide clear arguments as to why
EU productivity and competitiveness: An Industry Perspective -- Can Europe Resume the Catching-up Process?
, 2003
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a Computable General Equilibrium Model for Trade Policy Analysis, CEPII Working Paper No
"... 4 authors, including: mohamed hedi Bchir united nation economic and social commis… 37 PUBLICATIONS 230 CITATIONS ..."
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Cited by 32 (5 self)
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4 authors, including: mohamed hedi Bchir united nation economic and social commis… 37 PUBLICATIONS 230 CITATIONS
Redistribution and entrepreneurship with Schumpeterian growth
- Journal of Economic Growth
, 2008
"... and CORE. Part of this research was undertaken while García-Peñalosa was visiting ..."
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Cited by 11 (1 self)
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and CORE. Part of this research was undertaken while García-Peñalosa was visiting
Competition and Innovation
- JOURNAL OF INDUSTRIAL ORGANIZATION EDUCATION
, 2006
"... A vast and often confusing economics literature relates competition to investment in innovation. Following Joseph Schumpeter, one view is that monopoly and large scale promote investment in research and development by allowing a firm to capture a larger fraction of its benefits and by providing a mo ..."
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Cited by 10 (0 self)
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A vast and often confusing economics literature relates competition to investment in innovation. Following Joseph Schumpeter, one view is that monopoly and large scale promote investment in research and development by allowing a firm to capture a larger fraction of its benefits and by providing a more stable platform for a firm to invest in R&D. Others argue that competition promotes innovation by increasing the cost to a firm that fails to innovate. This lecture surveys the literature at a level that is appropriate for an advanced undergraduate or graduate class and attempts to identify primary determinants of investment in R&D. Key issues are the extent of competition in product markets and in R&D, the degree of protection from imitators, and the dynamics of R&D competition. Competition in the product market using existing technologies increases the incentive to invest in R&D for inventions that are protected from imitators (e.g., by strong patent rights). Competition in R&D can speed the arrival of innovations. Without exclusive rights to an innovation, competition in the product market can reduce incentives to invest in R&D by reducing each innovator’s payoff. There are many complications. Under some circumstances, a firm with market power has an incentive and ability to preempt rivals, and the dynamics of innovation competition can make it unprofitable for others to catch up to a firm that is ahead in an innovation race.
2011): “Innovation and price competition in a two-sided market
- Journal of Management Information Systems
"... We examine a platform owner’s optimal two-sided pricing strategy while considering seller-side innovation decisions and price competition. We model the innovation race among sellers in both finite and infinite horizons. In the finite case, we analytically show that the platform’s optimal seller-side ..."
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Cited by 8 (2 self)
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We examine a platform owner’s optimal two-sided pricing strategy while considering seller-side innovation decisions and price competition. We model the innovation race among sellers in both finite and infinite horizons. In the finite case, we analytically show that the platform’s optimal seller-side access fee fully extracts the sellers ’ surplus, and that the optimal buyer-side access fee mitigates price competition among sellers. The platform’s optimal strategy may be to charge or subsidize buyers depending on the degree of variation in the buyers ’ willingness-to-pay for quality; this optimal strategy induces full participation on both sides. Furthermore, a wider quality gap among sellers ’ products lowers the optimal buyer-side fee but leads to a higher optimal seller-side fee. In the infinite innovation race, we perform computations to find the stationary Markov equilibrium of sellers ’ innovation rate. Our results show that when all sellers innovate, there exists a parameterization under which a higher seller-side access fee
An Inverted-U Relationship between Product Market Competition and Growth in an Extended Romerian Model," Rivista di Politica Economica
- SIPI Spa
, 2005
"... Abstract The influence of product market competition on growth is re-considered by developing an extension of the basic Romerian model of horizontal product innovation. We find that the relationship between competition and growth is AN INVERTED-U RELATIONSHIP BETWEEN PRODUCT MARKET COMPETITION AND ..."
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Cited by 8 (0 self)
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Abstract The influence of product market competition on growth is re-considered by developing an extension of the basic Romerian model of horizontal product innovation. We find that the relationship between competition and growth is AN INVERTED-U RELATIONSHIP BETWEEN PRODUCT MARKET COMPETITION AND GROWTH IN AN EXTENDED ROMERIAN MODEL Abstract The influence of product market competition on growth is re-considered by developing an extension of the basic Romerian model of horizontal product innovation. We find that the relationship between competition and growth is inverse-U shaped, provided that the non accumulated factor input (e.g. labour) is employed in each economic activity. We explain this result by the interplay between two effects. For low values of product market competition, the positive resource allocation effect (the effect that an increase of competition has on the sectoral distribution of labour) outweighs the negative profit incentive effect (the effect that an increase of competition has on firms' incentive to innovate). When product market competition is intense, the resource allocation and profit incentive effects are both negative and reinforce each other in inducing a negative correlation between competition and growth.
Application of Mean Field Games to Growth Theory
"... Recent theories of economic growth, following the Schumpeterian model developed essentially by P. Aghion and P. Howitt ([AH92]), mainly focus on research and industrial innovation as the only way to generate a non decreasing growth process. Here, we are back to former ideas to explain growth with hu ..."
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Cited by 7 (0 self)
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Recent theories of economic growth, following the Schumpeterian model developed essentially by P. Aghion and P. Howitt ([AH92]), mainly focus on research and industrial innovation as the only way to generate a non decreasing growth process. Here, we are back to former ideas to explain growth with human capital accumulation only. However, our framework is quite new since we use the theory designed by J.-M. Lasry and P.-L. Lions on mean-field games ([LL06a, LL06b, LL07a]). This new framework allows us to model in a simple way the interaction between people and growth will be a byproduct of the interaction and competition between people to improve their welfare. We basically model a continuum of individuals whose wages depend not only on their own human capital but also on the whole distribution of human capital. This distribution dependency is important in two different ways. First, we take into account a competition effect in the labor market. Second we model the easiness or difficulty to improve human capital depending on the proximity to the technological frontier. Like in the recent paper by Aghion et al (2001) ([AHHV01]) or as in Aghion and Howitt ([AH]), growth is fostered by an escape competition effect. However, in our setting, it is the threat of competition that forces people to improve their human capital and not competition by itself: because individuals less skilled than a given person represent a threat for this person, she is forced to accumulate human capital. That leads evenhal-00348376,
Productivity and Employment Growth: An Empirical Review of Long and Medium Run Evidence
, 2004
"... This study argues that the creation of productive jobs is the key to economic growth, social development and improvements in living standards. The study provides extensive empirical evidence showing that the long run trend has been towards simultaneous growth in per capita income, productivity and e ..."
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Cited by 7 (0 self)
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This study argues that the creation of productive jobs is the key to economic growth, social development and improvements in living standards. The study provides extensive empirical evidence showing that the long run trend has been towards simultaneous growth in per capita income, productivity and employment growth. However, depending on the type of indicator and the time frame adopted, there are legitimate concerns about the distribution of the productivity and welfare gains from growth both within as well as between countries. Following the analysis of the long term growth pattern (Chapter 2), the study investigates under which conditions, in which regions and which industries a trade-off occurs between productivity and employment growth. In Chapter 3 patterns of employment-productivity trade-offs are established across regions and time periods at the macro level. Chapter 4 focuses on sectors of the economy. In Chapter 5 the study discusses the policy areas that will be most conducive to breaking or reducing the trade-off between productivity growth and employment in order to exploit the long run growth potential. We argue that, in addition to sound macroeconomic policies, a sensible role for market forces in allocating resources to their most productive uses is important. However, the key challenge is to create an institutional environment that can alleviate some of the negative effects in the short and medium run while not hampering the
