Simulating the New Economy

Gunnar Eliasson (), Dan Johansson and Erol Taymaz
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Gunnar Eliasson: Royal Institute of Technology, Postal: Infrastructure, SE-100 44 Stockholm, Sweden, and, The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

No 52, Ratio Working Papers from The Ratio Institute

Abstract: The IT, the Internet, or the Computing & Communications (C&C) technology revolution has been central to the economic discussion for several decades. Before the mid-1990s the catchword was the “productivity paradox” coined by Robert Solow, who stated in 1987 that “computers are everywhere visible, except in the productivity statistics”. Then the New Economy and fast productivity growth fueled by C&C technology suddenly became the catchword of the very late 1990s. Its luster however, faded almost as fast as it arrived with the dot.com deaths of the first years of the new millennium. With this paper we demonstrate that the two paradoxes above are perfectly compatible within a consistent micro (firm) based macro theoretical framework of endogenous growth. Within the same model framework also a third paradox can be resolved, namely the fact that the previous major New Industry creation, the Industrial Revolution, only involved a handful of Western nations that had got their institutions in order. If the New Economy is a potential reality, one cannot take for granted that all industrial economies will participate successfully in its introduction. It all depends on the local receiver competence to build industry on the new technology. We, hence, also demonstrate within the same model the existence of the risk of failing altogether to capture the opportunities of a New Economy.

Keywords: Industrial simulation; Innovation and growth; The New Economy; Non-linear dynamics (search for similar items in EconPapers)
JEL-codes: C45 C63 C81 C99 L16 L63 O14 O31 O33 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2004-06-21
New Economics Papers: this item is included in nep-cbe, nep-cmp and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published in Structural Change and Industrial Dynamics, 2004, pages 289-314.

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