An evolutionary growth model with banking activity

Abstract

In this paper, we propose an evolutionary growth model in which an innovative production sector interacts with a simplified banking sector. We explore the relationships between long‐term sources of growth (technological change) and short‐term/mid‐term factors (such as price dynamics and interest rates). The model suggests new explanations for the endogenous emergence of sharp crises with profound effects in the long run. An interesting aspect of the model is that these crises appear in a strictly private economy, in which everything produced is sold, and there are neither government distortions nor exogenous shocks. The crises emerge from the interactions between uneven innovation rates and market reactivity. In fact, high reactivity in financial markets can amplify the (initially small) effects of innovative competition, leading to a destabilization of economic growth. Drawing on the results of the model we suggest some policy implications.

Adjustment Processes Within Economic Evolution — Schumpeterian Approach

“…In many evolutionary models labelled as Schumpeterian (e.g. Almudi et al, 2019a , b ; Assenza et al, 2015 ; Dawid et al, 2019 ; Dosi et al, 2010 ), the role of economic statics within economic evolution is reduced to minimum. In contrast to many evolutionary studies, in the current paper, the role of economic static is not neglected.…”

“…During the last decade, there have appeared new formal models in the Schumpeterian evolutionary strand which aim at analysing general coordination mechanisms fully different with respect to the model presented in the current paper (e.g. Almudi et al, 2019a , b ; Assenza et al, 2015 ; Dawid et al, 2019 ; Dosi et al, 2010 ). In Dosi et al ( 2010 ), a past-Walrasian (see Colander, 2006 ) macroeconomic agent-based model with endogenous innovation that could bridge Keynesian theories of demand generation and Schumpeterian theory of technology bringing about economic growth is defined and analysed.…”

“…). In Almudi et al ( 2019b ), an evolutionary growth model in which the roles of a bank and financial structures of firms within innovative competition of firms are analysed is determined. The main results are the effects of simulations.…”

“…As we can see, modern studies on Schumpeterian evolution can be decomposed into two groups: studies within neo-Schumpeterian research program (Hanusch & Pyka, 2007 ; Day, 2007 ; Andersen, 2009 ; Foster, 2011 ; Freeman, 1982 ; Malerba & Orsenigo, 1995 , 1997 ; Nelson, 2016 ; Witt, 2017 ) and research papers on Schumpeterian endogenous growth theory (Aghion & Howitt, 1992 ; Dosi et al, 2010 , Assenza et al, 2015 ; Dawid et al, 2019 ; Almudi et al, 2019a , b ). The models of economic growth presented above study innovations in economic systems characterized by far-from-equilibrium dynamics and patterns of agent interaction leading to topological features different from the topology of classical theory of general equilibrium (Debreu, 1959 ).…”

Eco-Mechanisms Within Economic Evolution – Schumpeterian Approach

“…Our analysis takes static as well as dynamic forms of the economy. Such approach is fundamentally different from the main stream of modern studying of the Schumpeterian evolution which includes two paths of economic theorizing, i.e., neo-Schumpeterian research program (Hanusch, Pyka 2007;Day 2007;Andersen 2009;Foster 2011;Freeman 1982;Malerba, Orsenigo 1995, 1997Nelson 2016;Witt 2017) and Schumpeterian endogenous growth theory (Dosi et al 2010, Assenza et al 2015Dawid et al 2019;Almudi et al 2019aAlmudi et al , 2019b. The difference can be seen in the mathematical setting based on the set-theoretical and topological apparatus which is borrowed from general equilibrium theory.…”