Adaptive economic growth

Abstract

This paper outlines an evolutionary theory of adaptive growth based on the twin principles of enterprise and the coordinating role of markets. The central organising idea is that economies never grow without simultaneous development. Growth as conventionally understood is a product of structural change and economic self-transformation, and these processes are closely connected with but not reducible to the growth of knowledge. The dominant theme is enterprise, the variations it generates, and the multiple connections between investment, innovation, demand and structural transformation. We explore the dependence of macroeconomic productivity growth on the diversity of technical progress functions and income elasticities of demand at the industry level, and the resolution of this diversity into patterns of economic change through market processes. We show how industry growth rates are emergent phenomena, constrained by higher order processes of emergence that convert an ensemble of industry growth rates into an aggregate rate of growth. The growth of productivity, output and employment are determined mutually and endogenously, and their values depend on the variation in the primary causal influences in the system.

Innovation, structural change and productivity growth: evidence from Italian regions, 1980-2003

“…Metcalfe et al (2006) establish a connection between demand dynamics and growth retardation through technological change. Their model accounts for dynamics of productivity growth as induced by output growth, through the self-propelling mechanisms fed by innovation activities.…”

“…Firstly we test the hypothesis about the relationship between structural change and productivity growth, through the relationship between the change in the employment mix and the growth of TFP. According, among others, to Fabricant (1940), Fagerberg (2000 and Metcalfe et al (2006), when structural change is at stake, what deserves to be investigated is the impact of the change in the employment share of each sector. The basic econometric specification is the following:…”

Back to Engel? Some Evidence for the Hierarchy of Needs

“…These models have examined what economic effects may result from changes in the composition of household expenditure patterns that take place as household rises. A key message of demand-driven structural change theory is that the industrial composition of growing economies can be altered by the manner in which household expenditure patterns change as household income rises (Metcalfe et al 2006;Saviotti and Pyka 2008). This growing body of literature assumes that household expenditure on any particular good has an upper limit which causes the specific growth rate of demand faced by each sector to follow an S-shaped path whereby demand growth will slow down and eventually cease, as more households reach the saturation level of income (see inter alia Aoki and 4 The theoretical basis for the presence of saturation in demand patterns is the notion that some of the underlying needs that motivate consumption are 'satiable' that they can be effectively satisfied at some consumption level (see inter alia Menger 1871, Marshall 1890, Georgescu-Roegen 1954).…”

“…). Moreover, the fact that some of these needs are subject to satiation can provide important behavioral micro-foundations for models in which changes in the industrial composition of growing economies are linked to compositional changes in household expenditure patterns (see inter alia Aoki and Yoshikawa 2002; Metcalfe et al 2006; Saviotti and Pyka 2008). Beyond models of structural change, the existence of a universally-shared set of needs has fundamental implications for the analysis of household expenditure patterns.…”

Rethinking (New) Economic Geography Models: Taking Geography and History More Seriously

“…The third criterion of novelty is crucial to any theory of economic evolution: it is the creative capacity of economic agents (individuals and firms) and the creative functions of markets that drive economic evolution and adaptation. Thus knowledge and innovation assume central importance in evolutionary economics (Metcalfe et al, 2006).…”