Growth and the Smart State

Posted: 8 Aug 2014

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Alexandra M. Roulet

Harvard University - Department of Economics

Date Written: August 2014

Abstract

As countries develop, the main driver of economic growth shifts from imitation to innovation. These two sources of growth require different policies and institutions. In particular, in this article we argue that the transition from an imitation-based to an innovation-based economy calls the old welfare state model into question. It is not so much the size of the state that is at stake but rather its governance. What we need to foster economic growth in developed economies is not a reduced state but a strategic state, which acts as a catalyst using selective and properly governed support to the market-driven innovation process. This idea of a strategic state that targets its investments to maximize growth in the face of hard budget constraints departs both from the Keynesian view of a state sustaining growth through demand-driven policies and from the neoliberal view of a minimal state confined to its regalian functions.

Suggested Citation

Aghion, Philippe and Roulet, Alexandra M., Growth and the Smart State (August 2014). Annual Review of Economics, Vol. 6, pp. 913-926, 2014. Available at SSRN: https://ssrn.com/abstract=2477752 or http://dx.doi.org/10.1146/annurev-economics-080213-040759

Philippe Aghion (Contact Author)

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Alexandra M. Roulet

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

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