Product and process innovations in economic growth

Conclusions

The following main conclusions can be drawn from the analysis:

• (a) The ordinary neo-classical equilibrium growth model considering only process innovations is inconsistent, if it is accepted that there exists satiation for existing goods. In such a model there is a continuous lack of demand so that the neo-classical “equilibrium” cannot persist.

• (b) A growing market economy can stay in equilibrium only if there is a balance between technical change used to create new products and applied to processes.

• (c) The natural growth rate of the economy is no longer exogeneous as in the orthodox neo-classical model, but depends on the interaction with the rest of the economy.

• (d) There are two structural changes going withequilibrium growth, namely (i) a constant rise of the proportion of income to employment and (ii) a secular fall in the share of old products in favour of new products in total output.

• (e) Phases of inflation and price stability are (partly) due to imbalances in the introduction of product and process innovations.

• (f) Allowing for advertising, the preference function of consumers becomes an endogeneous part of a growing economy; it changes continuously to adjust to evolving technical conditions in the society, and at the same time it influences other parts of the economy.