Economic Development, Variety and Employment

Pier Paolo Saviotti and Andreas Pyka

Revue économique, 2004, vol. 55, issue 6, 1023-1049

Abstract: In this paper economic development occurs due to the creation of new sectors. Each sector is created by a major innovation, giving rise to a new market whose size is measured by the adjustment gap. The changes in the composition of the economic system occurring during economic development give rise to an increase in variety, measured by the changes in informational entropy of the economic system. The results of the paper show that the growing variety of the economic system can lead to a growing creation of employment even when the capacity to create employment within each sector declines as the sector matures. The paper confirms the important role that variety can play in sustaining economic development in the long run.

Date: 2004
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