Industrial Dynamics and Endogenous Growth

Economic growth can be described at the macro level, but it can never be explained at that level. Economic growth is a matter of experimental creation of a variety of ideas, some of which result in new technologies that are confronted with potential buyers (customers) in dynamic markets and hierarchies. Thus, economic growth results from the interaction of a variety of actors who create and use technology and demanding customers. Economic growth is inherently a micro phenomenon. This process is not linear. The focus of this paper is on the conditions that are conducive to creation of a variety of new ideas and on those that are necessary and sufficient for effective and efficient selection and retention of winners. We refer to the former as a technological system and the latter as a competence bloc, combined with an experimentally organized economy (EOE). The confrontation between actors and between actors and ideas gives rise to what we call industrial dynamics.

The paper is organized as follows. In sections 1, 2 and 3 we outline the main ideas behind the evolutionary theory of competence blocs and the experimentally organized economy (EOE) in which macroeconomic growth is generated by experimental selection. A dynamic version of Marshall's industrial districts is used as a pedagogical example to relate our thinking to both evolutionary economic modeling and to so-called New Growth theory. We then (section 4) summarize the concept of innovative technological supply or the technological system and (section 5) present the competence bloc as the organizer of a more or less efficient project selection process. In section 6 on industrial dynamics we explain how the confrontation between the creative innovators and economic actors who select projects yields economic growth. We illustrate the argument with a few case studies. In section 7, finally, micro-to-macro simulations of endogenous growth based on micro dynamics are presented.

  • Authors: Bo Carlsson & Gunnar Eliasson
  • Year: 2001
  • Organisation: Danish Research Unit for Industrial Dynamics
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