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Introduction

Introduction. Part 0: Three paradigms for analyzing growth policy. • AK paradigm :. • AK paradigm :. a “one-size-fits-all” approach to growth → applies to frontier countries and to countries far below the frontier. • Schumpeterian paradigm :. • Schumpeterian paradigm (continued) :.

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Introduction

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  1. Introduction

  2. Part 0: Three paradigms for analyzing growth policy

  3. • AK paradigm:

  4. • AK paradigm: • a “one-size-fits-all” approach to growth → applies to frontier countries and to countries far below the frontier

  5. • Schumpeterian paradigm:

  6. • Schumpeterian paradigm (continued):

  7. • Schumpeterian paradigm (continued):

  8. • Product variety paradigm: ●

  9. • Product variety paradigm (continued): • as in Schumpeterian model, equilibrium R&D and innovation rates result from a research arbitrage equation • but only one kind of innovation, always resulting in the same kind of new product → hard to distinguish between frontier innovation and implementation • in fact, hard to talk about technology frontier, distance to frontier, appropriate policy favoring one or another kind of innovation • no role for exit and turnover

  10. Part 1: Entry and Exit

  11. • Debate in Europe between:

  12. • What do the three paradigms say about entry/exit and growth?

  13. Entry and Exit in the Schumpeterian Model • when innovation takes place step by step, then increased entry (threat): → induces firms close to the frontier to invest more in order to escape entry → discourages firms far below the frontier from investing in innovation

  14. Entry and Exit in the Schumpeterian Model(continued) → exit can be positively correlated with growth as it results from more productive firms replacing lower-performing incumbents

  15. Figure 1: Entry and TFP growth near and further behind the technological frontier:

  16. Table A1: Foreign expansion, plant exit in supplying industries, and TFP growth of domestic incumbents:

  17. • Taking stock :

  18. Part 2: Education

  19. Is the European education system growth-maximizing?

  20. • Appropriate Education Systems:

  21. • Education and growth cross-US states: (Aghion-Boustan-Hoxby-Vandenbussche, 2005)

  22. Case Study: Alabama (Lister Hill)

  23. • Data:

  24. First-Stage Relationships

  25. Results: Educ. investment measured by spending; migration allowed

  26. • Taking stock:

  27. Conclusion: • Unlike AK and the product variety model, the Schumpeterian growth paradigm produces testable predictions as to how: • competition/entry/exit • the allocation of education funding • macropolicy should affect growth, and differently so according to the country’s or sector’s distance to frontier

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