Does technology cause business cycles in the USA? A Schumpeter-inspired approach

Abstract

Abstract:The purpose of this paper is to deal with questions of instability and economic crisis, deriving theoretical arguments from Schumpeter's works and presenting relevant empirical evidence for the case of the US manufacturing sector in the time period , just before the first signs of the global recession made their appearance. More precisely, we use a wide dataset that contains 473 manufacturing industries, that are clustered based on their annual change of hourly earnings per worker and we make an attempt to interpret the economic fluctuations in the clusters formed. Meanwhile, we study the causal relationships between the crucial variables dictated by Schumpeterian theory. In this context, a number of relevant techniques have been used, such as hierarchical clustering, canonical discriminant analysis, cointegration analysis, periodograms and Granger causality tests. Our findings seem to give credit to certain aspects of the Schumpeterian theory of business cycles. The results are discussed in a broader context, related to the US economy.Keywords: Economic Crisis, US Manufacturing sector, Schumpeter, Business Cycles. IntroductionThe Western World is superior, in terms of economic growth, compared to the poverty in most parts of the world due to, among other things, its technological superiority. In the words of Mokyr (1990, preface): "The difference between rich nations and poor nations is not […] that the rich have more money than the poor, but that rich nations produce more goods and services. One reason they can do so is because their technology is better; that is, their ability to control and manipulate nature and people for productive ends is superior".In the meantime, it is also true that the history of technological change and innovation contains several uneven periods in the history of particular economies. For instance, several nations are quite rich in technological progress and innovation. However, several peaks are often followed by periods during which the rate of technological change falls. So far, no satisfactory explanation has been found. As Thomson (1984, p. 243) has argued: "[t]echnical change is likeGod. It is much discussed, worshipped by some, rejected by others, but little understood".According to Mokyr (1990, p. 6), the reason is simple: "The diversity of technological history is such that almost any point can be contradicted with a counterexample." However, "Technological change is never automatic.[…] there usually must be a combination of considerations to…make it possible: (1) an opportunity for improvement…, or a need for improvement…and (2) a degree of superiority such that the new methods pay sufficiently to cover the costs of the change" (Landes 1969, p. 42).In this paper, we are dealing with questions of instability and economic crises, deriving arguments from Schumpeterian theory and presenting relevant empirical evidence for the case of the US manufacturing sector using disaggregate industrial data for the time period 1957-2006, based on relevant quantitative techniqu...

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