The Effects of Probabilistic Innovations on Schumpeterian Economic Growth in a Creative Region

RIT Economics Department Working Paper No. 15-08

29 Pages Posted: 24 Nov 2015

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 23, 2015

Abstract

We analyze the impact that stochastically occurring innovations have on Schumpeterian economic growth in a region that is creative in the sense of Richard Florida. Our analysis leads to four findings. First, we delineate the so called balanced growth path (BGP) equilibrium and then compute the BGP growth rate in our creative region. Second, we discuss why the lower limit of the support of the random variable that describes the outcome of innovation quality improvements, takes the value that it does. Third, we solve the social planner’s problem and derive the Pareto optimal growth rate in our creative region. Finally, we compare the BGP and the Pareto optimal growth rates, we discuss when there is either too much or too little innovation, and we conclude by commenting on the implications of our findings for future research on Schumpeterian economic growth in creative regions.

Keywords: Creative Capital; Creative Region; Innovation; Schumpeterian Economic Growth; Uncertainty

JEL Classification: R11; R13; O31

Suggested Citation

Batabyal, Amitrajeet A. and Beladi, Hamid, The Effects of Probabilistic Innovations on Schumpeterian Economic Growth in a Creative Region (November 23, 2015). RIT Economics Department Working Paper No. 15-08, Available at SSRN: https://ssrn.com/abstract=2694769 or http://dx.doi.org/10.2139/ssrn.2694769

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology ( email )

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Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics ( email )

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