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Diversity, Economic Webs, and Growth

44 Pages Posted: 27 Aug 2009 Last revised: 3 Nov 2009

Philip E. Auerswald

George Mason University - Schar School of Government and Policy

Stuart Kauffman

BiosGroup

José Lobo

Arizona State University (ASU)

Date Written: May 15, 1994

Abstract

In this paper we build upon work by Jacobs (1961, 1963, 1984) and Glaeser et al. (1993) to derive the following hypothesis: diversity of economic agents is conducive to innovation, and thus to growth. We present a simple model of a small open economy existing in a world where prices are fixed exogenously, capital (in this case knowledge capital specific to the firm) is immobile, rival and excludable. There is no market for the exchange of knowledge capital, so persistent quasi-rents accrue to firms with better than average productivity. We discuss some results pertaining to special cases of the model. We then extend the model to allow for external economies and to examine the relationship between economic diversity and growth. This leads to a tentative conclusion that may reconcile two distinct views of economic growth: the view that diversity of economic activities drives growth, and the view that economic specialization drives growth. We propose that these two phenomena represent distinct episodes in the evolution of economic systems.

Keywords: complexity, diversity, economic growth, external economies, networks, NK model

JEL Classification: D29, L23, O18, O30, O40

Suggested Citation

Auerswald, Philip E. and Kauffman, Stuart and Lobo, José, Diversity, Economic Webs, and Growth (May 15, 1994). Available at SSRN: https://ssrn.com/abstract=1460991 or http://dx.doi.org/10.2139/ssrn.1460991

Philip Edgar Auerswald (Contact Author)

George Mason University - Schar School of Government and Policy ( email )

3351 Fairfax Dr.
Arlington, VA 22201
United States

HOME PAGE: http://auerswald.org

Stuart Kauffman

BiosGroup ( email )

317 Pasco de Peralta
Sante Fe, NM 87501
United States

Jose Lobo

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

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