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Schumpeterian evolution of firms' capital-labor ratio distribution

Author

Listed:
  • Leonidov, A.

    (P.N. Lebedev Physical Institute, Moscow, Russia
    (NRU) Moscow Institute of Physics and Technology, Dolgoprudny, Russia)

  • Vasilyeva, E.

    (P.N. Lebedev Physical Institute, Moscow, Russia
    (NRU) Moscow Institute of Physics and Technology, Dolgoprudny, Russia)

Abstract

According to J. Schumpeter innovation and imitation are two key drivers of economic growth. A quantitative realization of this idea using the formalism of kinetic equations was described in a number of papers. In most of these studies only one firm efficiency factor, the total factor productivity, was considered. In general, a description of economic evolution should include more efficiency factors such as, e.g., total factor productivity (TFP) and capital-labor ratio. The present study makes a preliminary step in the direction of two factor model development by considering central planner's problem of endogenous growth driven by the capital-labor ratio. The model describes an evolution of a distribution of firms on an odel developmentefficient path by considering a difference-differential analogue of the Burgers' type equation operating at a set of discrete capital-labor ratio levels. It is shown that if investment efficiency does not depend on the investment size, and production is characterised by decreasing returns to scale then firms concentrate at a certain level of capital-labor ratio. In the case of decreasing efficiency of investment with respect to its size, one observes widening of the distribution of firms in the capital-labor ratio. In addition, it is shown that the latter result holds in the case of increasing returns to scale.

Suggested Citation

  • Leonidov, A. & Vasilyeva, E., 2020. "Schumpeterian evolution of firms' capital-labor ratio distribution," Journal of the New Economic Association, New Economic Association, vol. 48(4), pages 12-40.
    • Handle: RePEc:nea:journl:y:2020:i:48:p:12-40
    DOI: 10.31737/2221-2264-2020-48-4-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Schumpeterian evolution; economic growth; capital-labor ratio; firms' distribution; Burgers' equation;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools

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