Table of Contents

National Competitiveness and Economic Growth

National Competitiveness and Economic Growth

The Changing Determinants of Economic Performance in the World Economy

New Horizons in Institutional and Evolutionary Economics series

Timo J. Hämäläinen

The current paradigm shift in the world economy is challenging the traditional competitiveness and growth theories with their few explanatory variables. This book offers a more holistic framework to synthesise the key findings of the various branches of competitiveness and growth research. The author illustrates this framework with a new long wave theory of socio-economic development. This theory emphasises the competitiveness and growth benefits of rapid structural adjustment in the rapidly changing techno-economic environment. Based on thorough analysis the author argues that both markets and governments have become less efficient due to the current transformation of the world economy. His empirical data from 22 OECD countries in the 1980s and 1990s illustrates that efficiency and growth-oriented governments have significantly contributed to their countries’ economic success.

Chapter 4: Long waves of socio-economic development

Timo J. Hämäläinen

Subjects: economics and finance, institutional economics, international economics


1 TYPOLOGY OF TECHNOLOGICAL CHANGE We begin our analysis of socio-economic change from a Schumpeterian framework where technological innovations play a central role. Hence it is useful to first review the different types of technological innovation that take place in industrial economies. The literature distinguishes four types of technological innovations: incremental innovations, radical innovations, changes in technology systems and changes in technoeconomic paradigms (Freeman 1987; Freeman and Perez 1988). The economic and social consequences of each category of innovation are quite different. Incremental innovation Incremental innovations occur more or less continuously in any industry depending on the demand conditions, technological opportunities and other incentives to be discussed later (Chapter 8, section 1). Such innovations may result from organized R&D efforts but more often they are the outcome of inventions and improvements suggested by the production personnel, or stem from the proposals of users. Incremental innovations are particularly important in the follow-through period after a radical technological breakthrough. Although their combined effect is extremely important for the growth of productivity1 no single incremental innovation has dramatic effects and they may sometimes pass unnoticed and unrecorded. The evidence of demand-led innovations relates primarily to this category and they account for the vast majority of patents. Incremental innovations do not raise any major problems of structural adjustment because they do not require entirely new forms of organization, new types of capital equipment or infrastructure, new skills or institutional framework (Freeman 1987; OECD 1988, 1992). Radical innovations According to the famous ‘demand-pull theory’...

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