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

RIT Economics Department Working Paper No. 11-05

Vrije Universiteit Amsterdam Research Memorandum No. 2011-07

36 Pages Posted: 12 May 2011

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology (RIT) - Department of Economics

Peter Nijkamp

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2011

Abstract

We provide the first theoretical analysis of a one-sector, discrete-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. Our analysis generates several new results. In the deterministic model, R&D in time t surely leads to an innovation in time t 1. In this setting, we 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, we first define the equilibrium and the steady state BGP allocations. Second, we generalize the notion of the steady state and determine the number of unemployed workers. Third, we show that our regional economy experiences bursts of unemployment followed by periods of full employment. Finally, we 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 (May 10, 2011). RIT Economics Department Working Paper No. 11-05, Vrije Universiteit Amsterdam Research Memorandum No. 2011-07, Available at SSRN: https://ssrn.com/abstract=1837625 or http://dx.doi.org/10.2139/ssrn.1837625

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology (RIT) - Department of Economics ( email )

92 Lomb Memorial Drive
Rochester, NY 14623-5604
United States
585-475-2805 (Phone)
585-475-5777 (Fax)

HOME PAGE: http://people.rit.edu/aabgsh

Peter Nijkamp

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

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446091 (Phone)
+31 20 4445611 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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