Working Paper BETA #2018-34

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Title : Technological change and economic development: endogenous and exogenous fluctuations

Author(s) : Marianna Epicoco

Abstract : This paper aims at exploring the endogenous and exogenous forces that determine long-run fluctuations of innovative and economic activity. It proposes that technological paradigm shifts, structural change and major fluctuations of production are the result of the same endogenous process. This is defined as a co-evolutionary process between technological and economic variables based on cumulative multiplier and accelerator feedback effects between investments in innovation and demand. Exogenous factors are supposed to act upon this endogenous process, influencing the length and amplitude of fluctuations. This framework contributes to extant literature as it envisages an explicit endogenous mechanism explaining cyclical fluctuations of innovative and economic activity, and, at the same time, incorporates exogenous factors. Moreover, by combining the Schumpeterian analyses of innovation dynamics with the multiplier and accelerator effects coming from Keynesian theories, the framework integrates the impact of technological variables on economic activity and vice versa. To provide a preliminary supporting evidence, we have fitted the ICT cycle and the economic cycle to patent and productivity data, respectively. Our results suggest that the growth potential of ICT could be declining. This situation may represent an important opportunity, for public policy and socioinstitutional actors, to orient future development toward socially desirable directions.

Key-words : technological paradigm shift, structural change, economic fluctuations, co-evolution, productivity slowdown, ICT.

JEL Classification : O33, O40, O11, E32