Growth and Regional Development in an Enlarged European Union
Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner
Chapter 19: Searching for Schumpeter: the Â€nancial sector and economic growth in industrial countries
19. Searching for Schumpeter: the ﬁnancial sector and economic growth in industrial countries Joseph Bisignano 19.1. INTRODUCTION1 The study of economic growth is faced with a puzzle. A considerable portion of the measured rate of growth of output per man-hour remains unexplained. The textbook Solow (1956) model of economic growth, which assumes constant returns to scale and perfect competition, describes the growth rate of output per man-hour as dependent on the rate of growth of the capital–output ratio and a residual, called the ‘Solow residual’, or multi-factor productivity growth.2 The puzzle is that for many countries the residual appears to account for a large portion of the growth rate of output, by as much as one-half in some cases. Indeed, economists have found that the Solow residual leaves unexplained much of the cross-country variation in economic growth (Easterly and Levine 2000). There is even evidence that international diﬀerences in output per capita cannot be attributed to diﬀerences in capital per person (King and Levine 1994). If capital accumulation is not the engine of growth, what is? In recent years there has been a revival of a branch of growth theory which attempts to explain this residual and the growth puzzle, said to have originated with the Austrian economist Joseph Schumpeter (1911). Schumpeter is currently associated to two thriving schools of economic research: endogenous growth theory, which considers how endogenous technical change and innovation improve the quality of intermediate inputs, making obsolete previous inputs (‘creative destruction’), thus contributing...
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