Scandinavian Working Papers in Economics
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Department of Economics, School of Business, Economics and Law, University of Gothenburg Working Papers in Economics

No 38:
Why Does Technology Advance in Cycles?

Ola Olsson ()

Abstract: Long-run technological progress is cyclical because drastic innovations that introduce new technological opportunity are only profitable at times when repeated incremental innovation has nearly exhausted existing technological opportunity and driven entrepreneurial profit and income growth towards zero. The article presents a ’technological opportunity model’ where endogenous drastic and incremental innovations interact with exogenous discoveries in an idealized metric technology space. New ideas are created by convex combinations of existing ideas. Diminishing technological opportunity results in lower profits and growth, which then makes costly and risky drastic innovations profitable again. This relationship between intense drastic innovation intensity and poor levels of economic growth receives some empirical support.

Keywords: technology; growth; long waves; cycles; techno-logical paradigms; innovations; (follow links to similar papers)

JEL-Codes: E37; O11; O31; (follow links to similar papers)

33 pages, March 21, 2001

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