structural change and growth: country patterns and policy conclusions michael peneder (wifo)

1. structural change and growth:country patterns and policy conclusions michael peneder (wifo) IIS conference ‘on the future of economic policy‘, october 24th - 26th 2002, stanford university related papers to download at: http://www.wifo.ac.at/Michael.Peneder

2. purpose empirical and policy oriented validation of the meso-macro link in economic development outline I. schumpeterian development II. harberger´s visualisation III. panel growth regressions IV. invitation to a new policy perspective

3. schumpeterian development theoretical considerations neoclassical growth theory: exclusive macro-economic focus with strong homogeneity assumptions: no variety in industrial structure; endogenous growth theory: includes models of „creative destruction“ with separate research sector; preoccupation with steady states: portrays economy as merely „scaled-up“; schumpeterian view: entrepreneurial innovation as disequilibrating force driving long-term development: qualitative transformations and structural change;

4. schumpeterian development gdp p.c / share of high tech manufacturing‘85, ‘92, ‘99

5. schumpeterian development: gdp p.c / share of business services‘92, ‘99

6. harberger´s visualisation Lorenz-type curves: concentration vs. even distribution of contributions to aggregate growth; metaphor: „mushrooms vs. yeasts“ stands for schumpeterian vs. neoclassical growth outcome: - contributions to aggregate growth vary; - time pattern: periods of pronounced structural change and low aggregate growth are often succeeded by evenly distributed and high growth;

7. creative destruction and the new economy boom of the 90s

8. panel growth regressions • data: 28 OECD countries; 1990 to 2000; • dependent variable: • (a) GDP/head (PPP) (b) DGDP/head (PPP) • explanatory variables control for: • demography (lPOP, lPOPWA) • country-specific business cycle effects (EMR, EMRt-1) • gross fixed capital investment (lINVTt-1, D lINVT) • time dummies (global business cycle) • convergence effects: endogenously lagged variable in (b) • plus variables onindustrial structure: • value-added share of service industries (SOTSt-1; SOBSt-1) • relative export shares (XSR): tdit-1,Dtdi; • relative import shares (MSR): tdit-1,

9. income levels LSDV 1991 - 2000

10. growth arellano- bond (2step) 1990 - 2000

11. empirical validation standard variables are largely consistent; positive structural effects for technology driven manufacturing and business services: - direct effects (differential growth); - producer related spillovers; - user related spillover;  variations in industrial structure had a significant impact on aggregate income and growth in the 1990s !

12. policy implications to say “industrial structure matters“ does not imply “industries are a good target for policy intervention“ besides informational problems, specialisation patterns are highly persistent and based upon processes of self-organisation; the relevant question is, how to enable schumpeterian development , or “what functions must an economic system achieve to enable structural change and growth?“

13. a brief characterisation of system dynamics

14. three pillars of dynamic structural policy

15. policy conclusions invitation to experiment with a different view on policy: + an explicit dynamic legitimation; + broad outcomes similar to criterion of “market failure“, but closer to policy practice; + stresses interdependency, instead of isolated rationales; major problem & open questions: lack of a precise optimisation criterion (such as the welfare function); - how to achieve selectivity? - how to define priorities? - do we need a dynamic welfare (“progress“) function? - and many more ...

16. example 1: industry life cycles differential impact of economic policy depending on patterns of industrial dynamics (e.g. by Afuah-Utterback or Klepper): phase I - emergence of a novel business: • r&td and start up policies; liberalisation phase II - accumulation race: • complementary institutions; education & training; local clusters / global networks phase III - intense selection: • economic integration; competition policies

17. example 2: subsidiarity very stylized; manifold interdependencies, but might help to better understand the allocation of political responsibilities between local and global levels of power: priorities for (supra-)national level: fair rules of selection economic integration, harmonisation, liberalisation; competition policy; priorities for local & regional levels: innovation and learning education & training; complementary institutions; etc. typical overlap: - networking activities, R&D co-operation, etc. - infrastructure policies, etc.;

18. Edward Elgar, Cheltenham, january, 2001. table of contents: entrepreneurial competition (c) the organization of knowledge (t) intangible investments & human resources (e) competitive performance of European industry (e) sectoral specialisation and industrial location (t) competitiveness policy (c) c..conceptual; t..theoretical, e..empirical