Schumpeterian Growth and Growth Policy Design

Abstract

Schumpeterian growth theory features quality-improving innovations that displace previous technologies, and are motivated by prospective monopoly rents. It predicts, first, that a higher rate of growth should be associated with a higher rate of firm entry and exit, and that exit can enhance productivity growth; second, that some countries may converge to the technological frontier whereas others may diverge; third, that a given policy will have contrasting effects on sectors or countries at different distances from the frontier, and therefore growth policy must be adapted accordingly. In particular, entry and delicensing enhance growth more the closer sectors or countries are to the technological frontier.

This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume