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Gradual Product Replacement, Intangible-Asset Prices and Schumpeterian Growth

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  • Elias Dinopoulos
  • Douglas Waldo

Abstract

The paper develops a general-equilibrium model of scale-invariant Schumpeterian (R&D-based) growth. New higher-quality products are discovered through stochastic and sequential R&D races in each industry. The market share of an R&D race winner increases gradually and is governed by an exponential deterministic process. The introduction of gradual (as opposed to instantaneous) product replacement sheds more light on the effects of the rate of technology diffusion on long-run growth and on long-run dynamics of intangible asset prices. An economy with faster product diffusion rates experiences higher long-run innovation rates, faster transitional growth, and is populated by younger firms. As the typical firm becomes older, the earnings yield (i.e., the inverse of the price earnings (P/E) ratio) increases and expected earnings growth declines. Younger firms have lower earnings, lower market shares, but higher P/E ratios and higher expected earnings growth associated with their higher potential market growth. Copyright Springer 2005

Suggested Citation

  • Elias Dinopoulos & Douglas Waldo, 2005. "Gradual Product Replacement, Intangible-Asset Prices and Schumpeterian Growth," Journal of Economic Growth, Springer, vol. 10(2), pages 135-157, June.
    • Handle: RePEc:kap:jecgro:v:10:y:2005:i:2:p:135-157
    DOI: 10.1007/s10887-005-1669-y
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    References listed on IDEAS

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    1. Charles I. Jones, 1999. "Growth: With or Without Scale Effects?," American Economic Review, American Economic Association, vol. 89(2), pages 139-144, May.
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    Citations

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    Cited by:

    1. Osipian, Ararat, 2007. "Экономический Рост: Образование Как Фактор Производства [Economic Growth: Education as a Factor of Production]," MPRA Paper 7593, University Library of Munich, Germany.
    2. Gilles Koléda, 2005. "Northern and Southern Patent Novelty Requirements Harmonization, Growth and Trade," DEGIT Conference Papers c010_025, DEGIT, Dynamics, Economic Growth, and International Trade.
    3. Dinopoulos, Elias & Grieben, Wolf-Heimo & Şener, Fuat, 2023. "A Policy Conundrum: Schumpeterian Growth or Job Creation?," Economic Modelling, Elsevier, vol. 126(C).
    4. Edgar Ghossoub, 2009. "Technological Diffusion and Asset Prices," Working Papers 0002, College of Business, University of Texas at San Antonio.
    5. Edgar Ghossoub, 2009. "Technological Diffusion and Asset Prices," Working Papers 0002, College of Business, University of Texas at San Antonio.
    6. Elias Dinopoulos & Wolf-Heimo Grieben & Fuat Sener, 2012. "The Conundrum of Recovery Policies: Growth or Jobs?," Working Paper Series of the Department of Economics, University of Konstanz 2012-03, Department of Economics, University of Konstanz.
    7. Madsen, Jakob B., 2016. "Health, Human Capital Formation And Knowledge Production: Two Centuries Of International Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 20(4), pages 909-953, June.
    8. Michael Klein & Fuat Sener, 2023. "Product Innovation, Diffusion and Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 178-201, April.
    9. Ghossoub, Edgar A. & Beladi, Hamid, 2011. "Technological diffusion and asset prices," Economics Letters, Elsevier, vol. 111(1), pages 1-5, April.
    10. Diego Comin & Bart Hobijn, 2007. "Implementing Technology," NBER Working Papers 12886, National Bureau of Economic Research, Inc.
    11. Osipian, Ararat, 2008. "Economic Growth—Human Capital Nexus in Post-Soviet Ukraine, 1989-2009," MPRA Paper 7731, University Library of Munich, Germany.
    12. Jakob B. MADSEN & James B. ANG, 2014. "Finance-Led Growth in the OECD since the 19th century: How Does Financial Development Transmit To Growth?," Economic Growth Centre Working Paper Series 1408, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    13. Jakob B. Madsen & Minoo Farhadi, 2018. "International Technology Spillovers and Growth over the Past 142 Years: The Role of Genetic Proximity," Economica, London School of Economics and Political Science, vol. 85(338), pages 329-359, April.
    14. Michael Klein & Fuat Sener, 2023. "Product Innovation, Diffusion and Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 178-201, April.

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    More about this item

    Keywords

    asset prices; diffusion; product replacement; Shumpeterion growth; E44; E12; O33;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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