Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 1998:3: The Theory of Transformation Pressure - a New Perspective on Growth and Economic Policy

Lennart Erixon ()
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Lennart Erixon: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: The theory of transformation pressure offers a uniquely Swedish perspective on the "productivity slowdown" of the 1970s and 1980s. One example of this theory can be found in an influential argument from the early 1990s which states that devaluations of the Swedish currency lessened the external pressure on manufacturing and led to a delay in structural change and rationalisations. The theory generalises the idea that productivity growth in firms is stimulated by intense competition, cost pressures and low or qualified demand. The main challenge faced by such a theory is to explain why it seems that an immediate threat is needed to get a productive response from firms. The theory presented here assumes either genuine uncertainty, irrational behaviour or that firms become more creative when they are put under real pressure. Productivity growth is not always promoted by tight external circumstances. Growth may be maximised if pressure in each period is moderate or if periods with strong pressure are followed by periods of financial and technical consolidation.

Keywords: Transformation Pressure; Competition; X-inefficiencies; Innovations; Productivity; Growth; Rationality; Uncertainty; R&D Investments

JEL-codes: D24; D81; L16; L21; N64; O31

44 pages, December 15, 1998

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