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The Evolutionary Complexity of Endogenous Innovation

The Engines of the Creative Response

Cristiano Antonelli

The notion of endogenous innovation as the outcome of the creative response of firms to out-of-equilibrium conditions is the cornerstone of the new evolutionary complexity. This book elaborates and applies the theoretical framework established in the author’s previous work Endogenous Innovation: The Economics of an Emergent System Property. This volume carefully explores the role of the reactivity of firms to out-of-equilibrium conditions. It also examines the quality of knowledge governance mechanisms in assessing the levels of externalities that define the likelihood of creative responses, as an alternative to adaptive responses.
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Cristiano Antonelli

The notion of endogenous innovation as the outcome of the creative response of firms to out-of-equilibrium conditions is the cornerstone of the new evolutionary complexity. This chapter explores the role of the reactivity of firms to out-of-equilibrium conditions and of knowledge governance in assessing the chances that creative responses actually take place as an alternative to adaptive responses. It implements a systemic frame able to show that: i) the quality of knowledge governance is a determinant in making the response of firms creative rather than adaptive; and ii) the levels of firms’ reactivity enhance the rates of introduction of innovations and increase total factor productivity.

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Cristiano Antonelli

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Cristiano Antonelli

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Cristiano Antonelli

Technological congruence is an emergent system property defined by the match between the relative size of output elasticity and the relative abundance and cost of inputs in local factor markets. With given total costs, output is larger the larger is the output elasticity of the cheapest input. Technological congruence is a powerful tool that helps in grasping the economic complexity of technological change with respect to determinants of the direction of technological change and its effects in terms of growth accounting and specialization, both at the firm and the system level. Its appreciation stems directly from advances in the economics of innovation in understanding the endogenous determinants of the introduction and diffusion of directed technological changes. Technological congruence is most relevant to influence the actual levels of total factor productivity of new technologies and, consequently, to shape the competitive advance of firms and countries.

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Cristiano Antonelli

This chapter elaborates a Schumpeterian version of the H–O model (S–H–O) based on the hypothesis that technological change is endogenous and biased towards the most intensive use of production factors that are locally most abundant in comparative terms. In the standard H–O model, the differences between trading partners in the levels of the output elasticity of inputs and technological change are exogenous. The (S–H–O) model rests on the Schumpeterian notion of the creative response of firms which, caught in out-of-equilibrium conditions by the changing conditions of both factor and product markets, try to react by introducing biased technological changes directed towards the most intensive use of inputs that are locally most abundant in relative terms. The actual introduction of technological innovations, however, will depend on the availability of appropriate knowledge externalities. According to this framework, countries exposed to the out-of-equilibrium conditions engendered by enhanced globalization react with the introduction of new technologies biased towards the intensive use of technological knowledge as the most abundant and specific input. Technological knowledge in fact is characterized by its strong collective and systemic character that limits its dissemination and use outside its context of origin.

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Cristiano Antonelli

This chapter accommodates in the Schumpeterian frame of the creative response recent advances in the economics of innovation, technological change and knowledge to articulate a comprehensive model of Schumpeterian growth. Schumpeterian rivalry in product markets engenders mismatches in product markets and the consequent flows of R & D expenditures. Knowledge appropriability declines over time so that additional knowledge piles up, increasing the stock of public knowledge. Because of knowledge indivisibility – articulated in knowledge complementarity, exhaustibility, cumulability and transient appropriability – knowledge externalities are diachronic. Diachronic externalities stemming from the stock of public knowledge favour the generation of new technological knowledge, the search for technological congruence and the consequent reduction in the cost of knowledge. The secular decline in the cost of technological knowledge induces the creative reaction of firms, the search for higher levels of technological congruence and the consequent introduction of biased technological changes that augment the output elasticity of knowledge as an input. Knowledge cumulability and induced technological change account for the secular trend towards the knowledge economy.

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Endogenous Innovation

The Economics of an Emergent System Property

Cristiano Antonelli

This ground-breaking new book builds upon the Schumpeterian creative response. The author shows that firms, in out-of-equilibrium conditions, try and react by means of introducing innovations. The success of their reaction is contingent upon their access conditions to knowledge, which are shaped by the system in which they operate. The emergence of new innovations can, in turn, knock firms further out-of-equilibrium and cause changes in the system properties that govern their access to external knowledge. This path dependent loop of interactions between the system properties and the individual actions of firms, accounts for endogenous innovation and the dynamics of the system.