A Model of Growth Through Creative Destruction

Philippe Aghion and Peter Howitt

No 3223, NBER Working Papers from National Bureau of Economic Research, Inc

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.

Date: 1990-01
Note: EFG
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Citations: View citations in EconPapers (174)

Published as Econometrica, Vol. 60, no. 2 (1992): 323-352.

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Related works:
Journal Article: A Model of Growth through Creative Destruction (1992)
Working Paper: A Model of Growth Through Creative Destruction (1992)
Working Paper: A MODEL OF GROWTH THROUGH CREATIVE DESTRUCTION (1990)
Working Paper: A MODEL OF GROWTH THROUGH CREATIVE DESTRUCTION (1989)
Working Paper: A MODEL OF GROWTH THROUGH CREATIVE DESTRUCTION (1989)
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