A Reconsideration of Professor Iwai’s Schumpeterian Dynamics

Abstract

The paper takes up a Schumpeterian prototype model by K. Iwai (JEBO 1984) on the interplay of technological innovation and diffusion. In a first part, the deterministic version of the model is considered and its long-run equilibrium notion of a wave train is related to Iwai‘s analysis. The subsequent simulations of the full version of the model with a stochastic arrival of innovations typically yield long oscillations in the growth rates of average productivity. These long waves can be viewed as originating with the frequency distribution of techniques on a wave train, from which the economy is disturbed and back to which it continuously seeks to adapt, where it is in the very nature of this adjustment process to take several decades. Across a wide range of parameter scenarios, the average wave lengths are found to be closely related to the lifetime of techniques in the underlying deterministic economy. Furthermore, the lags between innovation activities and productivity growth are examined.