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Economic growth, business cycles and products variety: exploring the role of demand satiety

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Abstract

The paper presents a model of economic growth based on a population of heterogeneous and interacting agents. This model succeeds to generate - in a single framework - GDP growth and cycles as well as product life cycles. Contrary to the existing literature, we find that an increasing variety of consumer goods is not a necessary condition for sustaining the economic growth when consumers are subject to satiation. Indeed, intensive creative-destruction - that is an intensive process of sectors births and deaths - appears to be a more powerful growth engine. We also find that changing consumers’ satiety thresholds is likely to affect the nature of the correlation between the cyclical components of macroeconomic time series.

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Notes

  1. The present model has been written in C++ and can be obtained from the authors on request.

  2. Relying on agent-based methods is not a neutral choice, as it implies conceiving the economic world as a complex system (Holland and Miller 1991). Complexity emerges from the interactions of heterogeneous agents and from their reactions to the aggregate patterns that these interactions create (Arthur 2015). Agent-based modelers thus conceptualize the economy as an evolving multi-layers system of interactions between economic agents. Such a system is perpetually evolving due to agents’ adaptations and innovations (Arthur 2015; Dawid 2006; Farmer and Foley 2009). We consider agent-based modeling as the appropriate conceptual and modeling framework for this paper, since we are concerned with the question of the interplay between endogenous product innovations - and their diffusion - and trajectories of economic growth.

  3. A wage-elastic labor supply would have required to program a matching algorithm between supply and demand (see for instance Thiriot et al. 2011) The interest of such an approach would have been to allow a study of the interactions between creative-destruction and unemployment, but with the drawback of moving us away from our first objective, which is the study of the links between demand satiety and the economic growth. We thus leave the wage-elastic labor supply for further investigations)

  4. In practical terms, a higher weight on prices in consumers’ choice would slows down firm’s convergence towards a dominant design, and accelerate productivity growth because of firms’ efforts in process innovation.

  5. Budget c, t stands for the budget of the consumer c at time t. It is the total amount of liquidities that a consumer holds. Budget c, t increases when c finds a job and it decreases when c is consuming. If Budget c, t = 0 or when it is lower than any price, then the agent c cannot buy anything.

  6. The pseudo-code for consumers’ update of their products ranking is presented in Table 10.

  7. Each firm has a specific innovation expertise (Klepper 1996), attributed at its birth by a random draw in U(0; 2). This expertise is used in their innovation processes as well as for firms to enter in a new sector.

  8. It follows that - in a given firm - R&D is performed by only one worker. This hypothesis conforms to the one of constant productivity in research activities found in Baumol (2002).

  9. The pseudo-code of this method is presented in Table 9.

  10. Following the previous discussion on business cycles, we use the following values for the parameters of the bandpass filter: k = 12, lower frequency bound = 6, and upper frequency bound = 32.

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Acknowledgements

We thank the participants of the research seminar “The Economics of Innovative Change” (University of Jena, 19th June 2013) for their very helpful comments on a preliminary version of this paper.

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Authors and Affiliations

  1. Xi’An Jiaotong-Liverpool University, Suzhou, China

    Benoît Desmarchelier

  2. Lille 1 University, Villeneuve-d’Ascq, France

    Faridah Djellal & Faïz Gallouj

Authors
  1. Benoît Desmarchelier
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  2. Faridah Djellal
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  3. Faïz Gallouj
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Correspondence to Benoît Desmarchelier.

Annex

Annex

Table 6 Consumers’ attributes and methods
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Table 7 Sectors’ attributes and methods
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Table 8 Firms’ attributes and methods
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Table 9 Pseudo-code of the labor market
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Table 10 Pseudo-code of the update of consumers’ ranking of products
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Desmarchelier, B., Djellal, F. & Gallouj, F. Economic growth, business cycles and products variety: exploring the role of demand satiety. J Evol Econ 27, 503–529 (2017). https://doi.org/10.1007/s00191-017-0498-4

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