Rethinking Growth The Schumpeterian Perspective

Philippe Aghion May 10th, 2017 LUISS University, Rome

Peter Howitt

Joseph Schumpeter

Schumpeterian growth theory

• Long-run growth driven by innovations

• Innovations result from entrepreneurial activities motivated by prospect of innovation rents

• Creative destruction: new innovations displace old technologies

Ufuk Akcigit

Competition and growth: theoretical prediction

Competition and growth: empirical relationship

Richard Blundell

Competition, growth and distance to frontier

Competition and growth: the inverted-U relationship

Outline

• Introduction

•Growth enigmas

• “Next”

Growth enigmas

• The middle income trap

• The debate on secular stagnation

• Innovation, inequality, and social mobility

Argentinian versus US per capita GDP

Frontier innovation vs catch up growth

Enhancing productivity growth in advanced countries

- Liberalization of product market

- Investment in higher education

- Liberalization of labor market

Enhancing productivity growth in emerging market economies

• Foster technology transfers

• Reallocate factors

• Improve management practices

Long run growth effect of1000$ per-person spending on education

Fabrizio Zilibotti EEA Presidential Address

Growth enigmas

• The middle income trap

• The debate on secular stagnation

• Innovation, inequality, and social mobility

Secular stagnation?

• Gordon and the fruit-bearing tree approach

• Summers and the keynesian approach

Two productivity growth waves

0%

1%

2%

3%

4%

5%

1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011

Tren

d of p

rodu

ctivit

y gr

owth

rate

United States:HP filtering of Productivity growth with λ=500

Total factor Productivity Labor Productivity

Secular stagnation?

• Dale Jorgenson

• Missing Growth

• Europe

Sweden versus Japan

Country-specific productivity breaks

Reformers

Netherlands: Wassenaard agreement, 1982 • TFP growth : 1977-1983 0,5 %, 1983-2002 1,5 %

Canada, reforms initiated in early 1990s • TFP growth: 1974-1990 0,3 %, 1990-2000 1,1 %

Australia, reforms initiated in early 1990s • TFP growth: 1971-1990 0,4 %, 1990-2002 1,4 %

Sweden, reforms initiated in early 1990s • TFP growth: 1976-1992 0,4 %, 1992-2008 1,9 %

Growth enigmas

• The middle income trap

• The debate on secular stagnation

• Innovation, inequality and social mobility

0

5

10

15

20

25

301

91

8

19

20

19

22

19

24

19

26

19

28

19

30

19

32

19

34

19

36

19

38

19

40

19

42

19

44

19

46

19

48

19

50

19

52

19

54

19

56

19

58

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

Per

cen

tile

Sh

are

U.S. Top 1% U.S. Top 0.1%

US Top 1%

US Top 0.1%

Income shares at the very top over last 100 years: US top 1% increases from 9% in 1978 to 22% in 2012

Source: Atkinson, Piketty & Saez; High Income Database

Two main ideas

• Different measures of inequality which must be looked at differently • Top income inequality, “Gini”, social mobility

• Innovation is a source of top income inequality which differs from other sources (entry barriers,..) • *Steve Jobs* versus *Carlos Slim*

Why innovation differs from other sources of top 1% increase?

• Generates growth (we know)

• But in addition, *we* show that: • Innovation generates temporary rents (imitation and creative destruction)

• Innovation enhances social mobility (creative destruction)

• Innovation does not increase broad inequality

Innovation and Top Income Inequality

Philippe Aghion (LSE)

Ufuk Akcigit (Chicago)

Antonin Bergeaud (LSE)

Richard Blundell (UCL)

David Hemous (Zurich)

By contrast, lobbying…

• Increases top income inequality

• Increases inequality at large

• Reduces social mobility

• Does not enhance growth

Lobbying VS Top1% (USA)

Lobbying VS GINI (USA)

Looking ahead

Growth meets development

• Hsieh and Klenow

• Akcigit, Alp and Peters

Link between the age and the size of firms

Distribution of firms productivity

Becoming an inventor

Becoming an inventor

• Akcigit, Toivanen, Vaananen (Finland)

• Bell, Chetty, Jaravel, Van Reenen (US)

Introduction

• Basic questions: 1. What determines who become inventors?

2. Income mobility of inventors versus non-inventors?

Probability of Becoming and Inventor: IQ

Probability of Becoming and Inventor

Probability of Becoming and Inventor

Probability of Becoming and Inventor

Probability of Becoming and Inventor

Conclusion

• We have proposed a new theory but also a new way to do growth theory, through continuous dialogue with micro-data

• Our purpose was both, to better understand the growth process and also to rethink growth policy

• Addressing growth enigmas is useful, not only to satisfy our scientific curiosity, but also for society