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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.
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Chapter 12: A Schumpeterian approach to endogenous specialization in international trade

The Economics of an Emergent System Property

Cristiano Antonelli

Extract

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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