Journal of Evolutionary Economics

, Volume 21, Issue 4, pp 595–618 | Cite as

The product innovation process and GDP dynamics

Regular Article


In this paper, we explain GDP dynamics through an analysis of the forces that modify the structure of the economy. These forces are represented by the entry of new firms and product innovations. Our model is inspired by Bak’s sand pile model, and the entry of a new firm or innovation is comparable to dropping a grain of sand in Bak’s model. The resulting model involves the insights of both Keynes and Schumpeter. It could be defined as Keynesian because the aggregate output is demand driven. That said, the model can mainly be labeled as Schumpeterian for several reasons: (i) innovations have a key role, (ii) credit is involved in supporting the innovation process, (iii) innovations partially destroy old industries, and finally (iv) without innovations, the system gradually approaches its stationary state. In this simple model, the change in the number of sectors (products) of the economy is the decisive factor with the following results: (1) the aggregate production has an increasing trend; (2) fluctuations are asymmetric; (3) recessions have a “creative destruction” explanation; (4) “classical” cycles are gradually replaced by “growth” cycles.


Product variety Schumpeterian Growth Fluctuations Out of equilibrium macroeconomic dynamics Sand pile model 

JEL Classification

E11 E32 O41 



I thank Alberto Niccoli for useful discussions during the early phase of this work and the anonymous referees for their valuable comments. The usual disclaimer applies.


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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Department of Quantitative Methods and Economic TheoryUniversity of Chieti-PescaraPescaraItaly

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