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Technological Revolutions and Economic Development: Endogenous and Exogenous Fluctuations

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Abstract

Innovation scholars have highlighted that technological revolutions generate long-run fluctuations in innovative and economic activity. This paper aims at examining whether such fluctuations are endogenous or exogenous. This question is particularly important with respect to the current debate on the productivity slowdown and a potential new technological revolution. We propose a framework that integrates both endogenous and exogenous factors. On the one hand, the economic system tends to generate endogenously, and therefore recurrently, technological revolutions, structural change, and associated long-run fluctuations of production. This tendency is explained via a process of co-evolution between investment in innovation and demand, based on cumulative multiplier and accelerator feedback effects. On the other hand, exogenous factors are expected to exert a major impact upon this endogenous process by influencing the length and amplitude of fluctuations, i.e., the timing and economic impact of technological revolutions. Exogenous factors may include random historical events (e.g., wars), technical factors, public policies, and socio-institutional actors. To provide a preliminary evidence supporting the framework, we have fitted the ICTs (Information and Communications Technologies) cycle and the economic cycle to patent and productivity data, respectively. Our results suggest that the current productivity slowdown may be a signal that the economic system needs to change its leading technologies. This phase of technological ferment may represent an important and rare opportunity, for public policies and socio-institutional actors, to orient future development toward socially desirable directions.

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Notes

  1. ICTs include semiconductors, computers, software, telecoms, and the Internet (Perez 2010).

  2. Note that by replying to the observation that R&D activity generally declines during depression periods, Kleinknecht pointed out that it is the relative propensity to embrace radical versus incremental innovations that is at issue here (Silverberg 2002).

  3. Assuming that investment in innovation also has a positive impact on total employment would reinforce the proposed co-evolutionary process between technological and economic variables.

  4. Note that although a new paradigm may start emerging during the decline phase of the previous paradigm (dotted curve), the proper phase of emergence begins later, when the stock of investment has reached a minimum threshold (the logistic curve is indeed asymptotic to 0). Symmetrically, the decline of a paradigm is supposed to asymptotically continue (dotted curve) after the end of the proper phase of decline.

  5. Following Andersen (1999), instances of negative growth are disregarded and considered periods of crisis.

  6. Also note that in this context, depressions do not necessarily need to occur since recessions may be sufficient to trigger the emergence of a new technological cluster, if favorable exogenous factors intervene. This implies that logistic curves representing in Fig. 1, the stock of investment in the paradigm, may be partially overlapping.

  7. Data have been provided by Bergeaud et al. (2016). Following Bergeaud et al. (2016), data have been smoothed by using the HP filter (lambda = 500).

  8. Most scholars identify one big wave that would expand from the end of the nineteenth century to the 1970s and that would correspond to the second industrial revolution, based on innovations like electricity, internal combustion engine, and chemistry. Freeman and Perez (1988), instead, identify two waves corresponding to the electrification from 1890 to 1930 and to the motorization from 1940 to 1980.

  9. Data since 1977 have been extracted from Eurostat; data before 1977 have been extracted from the CRIOS dataset (Coffano and Tarasconi 2014) by using the IPC codes provided by OECD (https://www.oecd.org/sti/inno/40807441.pdf).

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Acknowledgments

I would like to thank for their useful comments Daniele Archibugi, Claude Diebolt, André Lorentz, Moritz Mueller, Pierpaolo Parrotta, and Patrick Rondé, as well as the participants at the 17th Conference of the International J. A. Schumpeter Society (Seoul), the 2d BETA-Workshop in Economics of Science and Innovation (Strasbourg), the 2019 EMAEE conference (Brighton), and the 2019 EAEPE conference (Warsaw). I would also like to thank Enrico Burello, who greatly helped me during the empirical analysis. The responsibility for eventual errors remains exclusively mine.

Funding

This work has received financial support by the project CPER-ARIANE “DYN-TECH,” funded by Lorraine region and FEDER.

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  1. BETA, University of Lorraine, 13 place Carnot, CO no. 26, 54035, Nancy, France

    Marianna Epicoco

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Epicoco, M. Technological Revolutions and Economic Development: Endogenous and Exogenous Fluctuations. J Knowl Econ 12, 1437–1461 (2021). https://doi.org/10.1007/s13132-020-00671-z

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