Growth and Innovation: Some Ideas

JANUARY 13, 2005

Unsatisfactory Nature of Traditional Growth Modelling

There is a large intellectual discrepancy between most of the formal growth models economists have devised, and descriptions of growth that take the form of economic history. Contemporary formal growth theories treat economic growth as almost all 'quantitative'. They aim to explain why various magnitudes, like per capita income, the real wage rate, and capital intensity, rise over time. Other magnitudes like the savings rate, or the share of labor in national income, or the rate of return on capital, tend to stay constant in these models, either because they are assumed to be constants, or because of various mechanisms built into the models. In any case, in economic growth as it is thus depicted, nothing much happens qualitatively. On the other hand, in the historical accounts, lots of qualitative things are happening. New technologies are emerging, and so also are new forms of business organization, and new institutions. Put another way, development is moving forwards and not simply things getting bigger or smaller or staying the same size.

Source: Richard Nelson in dosi_ea_1998, p. 319-320