Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 156: Innovative Change, Dynamic Market Allocation and Long-Term Stability of Economic Growth

Gunnar Eliasson
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Gunnar Eliasson: Research Institute of Industrial Economics (IFN)

Abstract: Market competition is central to innovative activity, the diffusion process and macro-economic productivity growth. Productivity growth at all levels comes about through institutional reconfiguration in response to the ongoing market process. Stable and sustained long-term growth in output requires the continuous creation of new technological and commercial solutions to production and marketing problems and exits of outmoded institutions. What is needed, in short, is a continuous turnover of monopoly rents that preserves diversity of economic structure. This means, most importantly, that innovative activity or technical change at the micro market level cannot be treated as an exogenous force, independent of the market process. Hence, discussion of socially optimal choices of technology becomes irrelevant.

Keywords: Innovation; growth; institutional change; optimal choice; micro-to-macro model

JEL-codes: L10; L20; O30; O40

48 pages, August 1986

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