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A model of growth through creative destruction (1990)
| Citations: | 1907 - 26 self |
BibTeX
@MISC{Aghion90amodel,
author = {Philippe Aghion and Peter Howitt},
title = {A model of growth through creative destruction},
year = {1990}
}
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Abstract
This paper develops a model based on Schumpeter's process of creative destruction. It departs from existing models of endogeneous 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 endogeneous to the model; in particular it depends on the size and likilihood of innovations resulting from research and also on the degree of market power available to an innovator.
Keyphrases
creative destruction many innovation negative externality normative term much growth growth equilibrium positive term random walk laissez-faire economy business-stealing effect market power endogeneous growth industrial innovation average growth rate research today old technology high level resulting process normative implication rapid obsolescence
