A Schumpeterian Model of Entrepreneurship, Innovation, and Regional Economic Growth

International Regional Science Review, Vol. 35, No. 4, pp. 464-486, 2012

Posted: 6 Sep 2012

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: September 5, 2012

Abstract

The authors provide the first theoretical analysis of a one-sector, discreet-time, Schumpeterian model of growth in a regional economy in which consumers are risk neutral, there is no population growth, monopolistic entrepreneurs produce intermediate goods, and a single consumption good is produced competitively. The authors’ analysis generates several new results. In the deterministic model, R&D in time t surely leads to an innovation in time t þ 1. In this setting, the authors show that relative to the balanced growth path (BGP) equilibrium, the social planner always allocates more labor to R&D and hence achieves a larger size of innovation and a higher growth rate. Next, in the stochastic model, R&D in time t probabilistically leads to an innovation in time t 1. In this setting, the authors first define the equilibrium and the steady state BGP allocations. Second, the authors generalize the notion of the steady state and determine the number of unemployed workers. Third, the authors show that the regional economy experiences bursts of unemployment followed by periods of full employment. Finally, the authors show that a decline in the time discount rate increases the average growth rate and the average unemployment.

Keywords: Creative Destruction, Dynamic, Entrepreneur, Innovation, Regional Economy, Stochastic

JEL Classification: R10, E10, O31

Suggested Citation

Batabyal, Amitrajeet A. and Nijkamp, Peter, A Schumpeterian Model of Entrepreneurship, Innovation, and Regional Economic Growth (September 5, 2012). International Regional Science Review, Vol. 35, No. 4, pp. 464-486, 2012, Available at SSRN: https://ssrn.com/abstract=2142132

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology ( email )

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Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

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+31 20 4445611 (Fax)

Tinbergen Institute

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