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National Competitiveness and Economic Growth

The Changing Determinants of Economic Performance in the World Economy

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.
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Chapter 2: Literature review

Timo J. Hämäläinen


In the development of our analytical framework we draw on several different disciplines and numerous streams of literature. Hence the theoretical chapters of our study discuss many theories and research results that would normally be included in the literature review. In our review we focus on a few key contributions in the fields of economic growth, international trade and national competitiveness. In particular we discuss the classical, neoclassical and endogenous growth theories; traditional and more recent trade theories; and the ‘diamond’-theory of national competitiveness. The discussion reveals some important weaknesses in the established theories and underlines the benefits of a more systemic framework. 1 CLASSICAL, NEOCLASSICAL AND ENDOGENOUS GROWTH THEORIES The different streams of economic growth research provide an important theoretical underpinning for the current international competitiveness research.1 Since the theoretical arguments of these two fields of research tend to overlap, researchers often substitute the trendy word ‘competitiveness’ for the more traditional ‘economic growth’. Indeed, as we have argued before, the determinants of competitiveness and growth are roughly the same at the level of economic systems. However there are also important differences. The first difference is the fact that international competitiveness at the firmand industry-level may or may not correlate with the growth of the domestic economy. The international mobility of resources has weakened the link between the international competitiveness of firms and that of their home countries (Lipsey and Weiss 1981; Blomström 1991; Kravis and Lipsey 1992). Internationally competitive firms can move their operations to foreign countries if...

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