Public Happiness through Manufacturing and Innovation

This article uncovers the theory of industrialization of the eighteenth-century German Cameralist Johann Heinrich Gottlob von Justi, who was the most important figure in German Cameralism. This topic is highly under-examined. This article finds that Justi proposed four reasons for industrialization in order to promote economic development: (1) manufacturing had a highly differentiated division of labor; (2) manufacturing was an innovation-intensive activity; (3) manufacturing was a science-based activity; and (4) manufacturing cultivated people’s psychological qualities which were required to realize economic development. Based on these findings, this thesis argues that Justi’s theories of industrialization and innovation contemplated a model of economic development similar to what is known today as “Schumpeterian growth.” This article aims to deepen our understanding of the significance of manufacturing and innovation in the early modern mercantilist and Cameralist economic theories.

R&D Heterogeneity and the Impact of R&D Subsidies*

This paper studies the determinants of R&D heterogeneity and the economic impact of R&D subsidies. We estimate a Schumpeterian growth model featuring firms with heterogeneous innovation efficiencies. The model fits well the R&D investment distribution, and the frequency and relative size of R&D performers. Using the model we study the impact of a Norwegian R&D reform targeting firms with R&D spending below a certain threshold. The size-dependent subsidy increases aggregate R&D investment by 11.7%, but reduces growth and welfare. In contrast, a uniform subsidy stimulates investment, growth and welfare.

The vision sustained

This chapter demonstrates how Schumpeter’s monetary theory of economic development has endured and stood the test of time. It first addresses the later monetary theory of John Hicks and early representatives of the dissenting view that money matters to growth. Among these, his students James Tobin and Hyman Minsky carried important elements of his vision into the emerging New Keynesian and Post-Keynesian traditions. From the 1970s onwards, the growing literature on financial frictions substantiated his emphasis on imperfect markets by exact theoretical explanations. These allowed for the further integration of finance into Schumpeterian growth models, which have become a forceful strand of the macroeconomic mainstream since the beginning of the 1990s. Similarly, they provide the theoretical underpinning for scripting the nexus of finance and growth in the more recent waves of agent-based models. Finally, the chapter discusses the empirical research on the nexus between finance and growth.

Inflation, market structure, and innovation-driven growth with distinct cash constraints

This article explores the effects of monetary policy (inflation) in a Schumpeterian growth model with an endogenous market structure and distinct cash (or cash-in-advance, CIA) constraints on consumption, production, and two types of R&D investment—quality-improving and variety-expanding R&D. We show that the relationship between inflation and growth is negative if quality-improving R&D (incumbent) is subject to the CIA constraint, but positive if variety-expanding R&D (entrant) is subject to the CIA constraint. Inflation has no effect on growth as consumption or production is subject to the CIA constraint. In addition, the firm size may either increase or decrease in response to inflation depending on which type of R&D is constrained by cash. With all CIA constraints properly imposed, a likely scenario in our numerical analysis shows that a rise in inflation leads the growth rate to exhibit a decrease in the short run but an increase in the long run. Moreover, our welfare analysis shows that Friedman’s rule, in general, is not socially optimal.

Wealth Inequality in the Long Run: A Schumpeterian Growth Perspective

This paper extends the analysis of the wealth–income ratio based on the neoclassical model in a Schumpeterian growth framework in which savings are channelled to both tangible and intangible capital investment. Using historical data for 21 OECD countries over the period 1860–2015, we find that the wealth–income ratio and, hence, wealth inequality, is negatively related to the rate of economic growth and positively related to the rates of investment in intangible and tangible assets, as predicted by the theory. Accounting for the innovation-induced counteracting growth effect on the wealth–income ratio, we show that the net effect of investment in intangibles on wealth inequality is positive. Our estimates suggest that intangibles have been a contributing factor in wealth inequality since 1860 and that the marked increase in the investment in intangible assets in the post–WWII period has been a significant driver of wealth inequality since the 1970s.

STI policies in the Dominican Republic: the influence of economic rationales from a context-development perspective

This article examines the influence of different economic rationales in the Dominican Republic’s science, technology, and innovation (STI) policies from a context-development perspective. For this purpose, four STI policy frameworks are reviewed: the National Competitiveness Plan; the Strategic Plan of Science, Technology, and Innovation; the Ten-year Plan of Higher Education; and the National Development Strategy 2030. Three cycles of STI policies are covered: the industrialization and import substitution cycle; the structural adjustment cycle; and the post-structural adjustment cycle. Five economic rationales are considered: neoclassical, Schumpeterian growth, neo-Marshallian, systemic–institutional, and evolutionary thought. Based on the results, three rationales prevail a systemic–institutional approach; a neo-Marshallian perspective; and a Schumpeterian growth approach. These rationales may refer to the country’s challenges to spur its potential for economic growth and development.