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Shumpeterian Growth Theory in the Context of the Innovation-Led Transition of Economies

Shumpeterian Growth Theory in the Context of the Innovation-Led Transition of Economies

Journal of Institutional Studies, , Vol. 11 (no. 2),

The paper explores the Schumpeterian stream in economic growth theories, which associates sustainable growth with an endogenous nature of technological progress and an effective market reallocation of resources to the most productive agents generating radical innovations. The resource reallocation is driven by the micro-level process of creative destruction that displaces less effective firms, technologies, or practices by more productive and innovative ones through the market competition. We highlight two interconnected packages of economic growth policies, deriving from Schumpeterian theory, – firstly, measures stimulating a firm-level innovation activity, and secondly, measures supporting a barrier-free environment for a dynamic inter-firm flow of resources and new technologies. We analyze how creative destruction accelerates a country’s total factor productivity (TFP) and how this positive effect is suppressed (f.e., in China or Russia) by fragmentation of economy, i.e. by large intra-industry gaps in the level of firms’ productivity. The Schumpeterian growth theory helps to explain reasons for the “new normal” situation and the slowdown of TFP in developed economies, as well as the problem of a middle-income trap in developing countries. Special attention is given in this connection to the phenomenon of “zombie-firms”. We present a composite comparative analysis of the existing growth theories (Keynesian, neoclassical, evolutionary, institutional and complexity economics), identifying the place of Schumpeterian theory among them. We assess advantages and limitations of this theory in the context of the up-to-date economic thought and the renewed economic policy approaches.


Keywords: endogenous growth models; creative destruction; economic growth theories; innovation-driven growth; institutional environment; resource reallocation, total factor productivity

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