Interaction of Drastic and Incremental Innovations: Economic Development Through Schumpeterian Waves

School of Business Discussion Paper No. A 99.02

30 Pages Posted: 10 Nov 2000

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Ehud Zuscovitch

Ben-Gurion University, (Deceased)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2001

Abstract

This paper establishes a model, where up-stream firms 'produce' drastic innovations and down-stream firms specialize in final goods production. A drastic innovation obsolesces the existing technology but down-stream firms can improve it by their incremental innovations. The economy develops in waves, where each wave is surged by a great leap forward in technology and followed by a sequential of adjustments. It is found that if next drastic innovation comes sooner, efforts in current drastic innovation fall but efforts in incremental innovations rise. More investment by down-stream firms in incremental R&D reduces up-stream firms' incentives in drastic R&D. The comparative static analysis shows that a reduction in the expnsiveness of drastic innovation, and an increase in the sale of down-stream firms and in the insignificance of drastic innovation and in the duration of a drastic technology will raise (reduce) drastic (incremental) R&D efforts.

Keywords: Drastic innovation, Incremental innovation, Development, Schumpeterian dynamics

JEL Classification: O31

Suggested Citation

Yin, Xiangkang and Zuscovitch, Ehud, Interaction of Drastic and Incremental Innovations: Economic Development Through Schumpeterian Waves (January 2001). School of Business Discussion Paper No. A 99.02. Available at SSRN: https://ssrn.com/abstract=249077 or http://dx.doi.org/10.2139/ssrn.249077

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Ehud Zuscovitch

Ben-Gurion University, (Deceased)

N/A

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