Economics of an Innovation System

Inside and Outside the Black Box

Tsutomu Harada

• Publisher: Routledge
• Year: 2019
• Print ISBN:
  9780367660628
• eBook ISBN:
  9780429758010
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Existing literature looks at national innovation systems from the perspective of either "inside the black box" or "outside the black box". This is the first book that analyzes both the inside and outside of the black box using a general equilibrium framework.

The book looks at what is outside the black box and provides models of path-dependent endogenous growth; examines the dynamics of the black box from the intersectoral perspective of the economy; and proposes an innovation flow matrix. It also takes into account both business cycles and endogenous innovation in the unified New Keynesian dynamic stochastic general equilibrium (DSGE) model and examines how business cycles and other policy shocks affect endogenous innovation.

The unified treatment of the national innovation system from perspectives both inside and outside the black box using rigorous economic models and empirical analyses makes this an enlightening work, shedding new light on innovation economics.

Part I
Outside the black box

Path-dependent growth

1
Path-dependent economic growth with technological trajectory

1 Introduction

Although a wide consensus has emerged that income inequalities across countries are attributable to differences in technology rather than differences in human capital accumulation, little work has explored how different technologies are adopted and improved, or how subsequent technical change takes place. Most of the related studies on economic growth and development assume identical production functions across countries, and only the differences in factor endowments, savings rate, or productivity levels are allowed to account for cross-country differences.

However, according to a famous study by Habakkuk (1962), the technological experiences of the US and Britain during the nineteenth century stand in a sharp contrast to each other. That is, US nineteenth-century technological progress can be attributed to a tendency towards labor saving, whereas technological progress in Britain can be attributed to a tendency towards saving capital rather than labor. Habakkuk’s thesis was later reformulated by David (1975) such that relative factor prices influence choices among techniques, but such choices, in turn, have a strong influence upon the path of subsequent technological change due to “local technological spillovers”. As a result, the US selected labor-saving technology, leading to labor-saving technological change, while Britain adopted capital-saving technology and subsequently followed the path of capital-saving technological change. These contrasting “technological trajectories” between the US and Britain and their “path-dependency” are widely accepted among economic historians, but not necessarily among growth and development economists.

The purpose of this chapter is to formalize the ideas of “local technological spillovers”, “technological trajectory”, and “path-dependent aggregate growth”, and to show how path-dependence can account for convergence or divergence among multiple countries in the process of economic growth and development. For this purpose, the two-stage optimal control problem is formulated to integrate both the neoclassical Solow and endogenous growth models. The model in this chapter assumes that the economy industrializes in two stages. In the first stage, the economy starts industrialization through factor accumulation (the Solow stage), and after sufficient factor accu...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Introduction
• PART I Outside the black box: path-dependent growth
• PART II Dynamics of the black box: intersectoral growth
• PART III Inside the black box: innovation mechanism
• PART IV Measuring the black box: innovation flow matrix and policy evaluation
• References
• Index