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A model of growth through creative destruction

Aghion, P.; Howitt, P.; (1990) A model of growth through creative destruction. (NBER Working Papers 3223). National Bureau of Economic Research: Cambridge, US. Green open access

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Abstract

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.

Type: Working / discussion paper
Title: A model of growth through creative destruction
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.nber.org/papers/w3223
Language: English
Additional information: Please see http://eprints.ucl.ac.uk/17663/ for details of the version published in Econometrica
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/17807
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