4η παρουσίαση Economic growth and structural change

• Interpretation of facts
•
• Summary of growth theories
•
• Structural change and growth dynamics
(επανάλαβε τα προηγουμενα Endogenous growth theory …….)

Evolutionary Perspectives on Economic Growth

14,000 30

Manufacuring labour share (%)

12,000
25
GDP per capita (1990 $)

10,000
20
8,000
15
6,000
10
4,000

2,000 5

- 0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Brazil GDPcap Skorea GDPcap Brazil share Skorea share

1
 DRAM Product Cycle 1975-2004
3000

Million Units 2500

2000

1500

1000

500

0
1975
1977

1983
1985
1987

1993

1999
2001
1979
1981

1989
1991

1995
1997

2003
1K 4K 16K 64K 256K 1M 4M
16M 64M 128M 256M 512M 1G

Changes in Market Leadership --Hard Disk Drives

Product Generation:
14-inch (1973)
8-inch (1978)
5.25-inch (1981)
3.5-inch (1986)
2.5-inch (1990)
1.8-inch (1994)

Dominant designs:Industry dynamics

90

80

N 70
u
m
b 60 AUTO
e Leading Firm: TV
r
50
Control Data TUBES

o Priam, Shugart TYPEWRITERS

TRANSISTORS
f
40 Seagate, Miniscribe MPC SUPERS
F Conner, Quantum CALCULATORS
i 30 Conner, Quantum I.C.
r
m Integral
s 20

10

0
2
74

99

19

34
39

44

54

64
69

79

89
79

84
89
94

14

24
29

49

59

74

84
4
9

Years (from 1874 to 1990)

ECONOMIC GROWTH AND TECHNOLOGICAL CHANGE: Some Crucial Concepts

•First, heterogeneity between economic agents or economic units, be it firms, consumers, countries or even
technologies. The second concept is economic selection as a counterpart of natural selection. Firms that have
“better” strategies than other firms will tend to grow, while firms with “worse” strategies will tend to lose
market share. Which strategies are good or bad is a matter of theory, and many different aspects of this have
been explored in recent evolutionary models.

•Economic theory does not have much to say about the strategy of individual firms, at least not in the
traditional way that economic theory wants to explain behaviour. Evolutionary economic models usually
revert to the concept of “rules of thumb”, as a description of economic behaviour under bounded rationality
(Nelson and Winter, 1982). Rules of thumb take the form of a fixed ratio of, for example, investment to
profits, or R&D to profits. What determines the exact value of these ratios is not explained at the level of the
individual firm. Instead, the distribution of the rules of thumb over the complete firm population evolves
endogenously (at least in the more sophisticated evolutionary economic models).

•The central theme in this literature is that one cannot make a useful distinction between “economic” and
“non-economic” factors when trying to explain economic growth. These authors think of the “social system”
as composed of different “domains”, e.g. the techno-economic domain and the socio-institutional domain
(Perez, 1983), or the separate domains of technology, economy and institutions. Each of these domains has its
own dynamics and explanatory processes, but what is important is that the domains exert strong mutual
influences. Examples of such interaction are the impact of European integration (a process that started very
much as a way of stabilising Europe politically after the 1940s) on economic growth, the impact of culture on
regional innovation systems, or the influence of firm organisation on economic growth. In this view, any
“model” that limits itself to pure economic factors (such as R&D, capital investment or human capital)

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provides a far too narrow perspective on economic growth.

•Technologies and institutions change over time, and what drives economic growth in one era (e.g. economies
of scale in relation to mass production) might become much less important, or might be substituted by a
different factor (e.g. network economies) in a different era. In terms of economic growth rates, such a process
is quite different from the neo-classical notion of steady-state growth.

General conclusions

•Economic growth is first of all a process of transformation, not of convergence to a steady-state growth path.
The transformation of capitalism involves interaction of the economic sphere with other domains, such as
science and technology, and institutions.

•
•This has three major implications. First, that differences in economic growth (both over time and between
countries) are hard to predict ex ante, but often have clear underlying explanatory factors ex post. Second, that
in the long run, economic growth is not a process of general convergence. One might indeed observe
historical periods of convergence during times when institutions and technological developments allow this,
but periods of divergence of economic growth must also be expected. Third, any distinction between trend
growth and cyclical variations around the trend is problematic.

Why do some countries grow so much faster, and have much better trade performance, than other
countries?
•A key empirical feature of economic growth, is the existence of significant differences among the growth
rates of economies, both nationally and regionally.
•This has led to a wide body of theory and applied research which seeks to explore the roots of these
differences; such theory is of considerable importance for small economies such as Greece.
•The key idea is that we can distinguish between countries which are at the scientific/technological "frontier",
and those who behind the leaders; they have a technological gap between themselves and the leaders. The
follower economies of course have the opportunity to "catch up" with leaders by importing and diffusing the
advanced technologies of the leader economies.
•
•From this perspective, rates of growth of output must inevitably differ.

THE ‘CRITICAL TECHNOLOGIES’ GROWTH ARGUMENT

1. Growth is based on specific new industries characterised by radical technological change.
2. These radical technologies tend to be 'clustered' together.
3. These industries displace existing activities, creating investment opportunities and 'virtuous circles' of
growth; as opportunities decline, growth rates slow.
4. ICT is a key activity of this type at the present time. It is rapidly growing a major employer, with major
employment growth prospects 'knowledge intensive‘ a driver of growth in other sectors

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 Evolutionary Interpretation of Growth Patterns

Historical Account
•1890-1913
–entrepreneur-driven
–technological convergence
–per capita GDP divergence, congruence technology, culture, politics, economy
–loose technology & growth links
•1913-1929
–Direct innovativeness & growth link
–technological catching up, per capita income divergence
–international uniformity in links between technology & growth
•1929-1939
–changes in innovativeness & growth – stages of innovation, investment, productivity growth &
competitiveness
–divergence technological capability & income growth
–structural uniformity, fine-tuning technological regimes
•1945-1975
–unified regime of growth, technology
–technology & income catch up, virtuous circle – imitation, learning, innovation, labour productivity,
investment
–foreign trade multiplier, manufacturing output growth causes income growth

Growth and Development - regularities in growth relative to initial development gap with USA
[114 countries, 1960-85]
•variance grows systematically, countries closer to frontier (USA), smaller growth differences
•convergence-divergence dichotomy
•exactly opposite of convergence hypothesis

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 Technology and Competition: Drivers of Change
Developing
Countries Need
to integrate
Multinational - Mobility of Capital
Search for in World
Corporations - Decline in Profit Rates
New Markets Economy
and Resources
Technological innovation Emerging Sector
(ICT and Communications Competition Overcapacity
Globalization Revolution/Internet)

Structural Other
Drivers of Change Drivers of Change

Competitiveness and
Creation of a New Creative Destruction
Competitive
Environment

Losers Out of Business

Competition Policies
(government)
and Institutions Firms
Responses and New entrants New Products
Strategies and Services

-Profits
- Creation of Value
Winners - New Products and Services
- New Industries
- Restructuring of Old Industries