Creative Destruction And Economic Growth

This dissertation discusses Schumpeterican Growth Model which emphasizes the growth process through Creative Destruction is a dynamic competition process, and tries to apply Creative Destruction to different aspects of economics. By this way, microeconomic methodologies are used in macroeconomic analysis. Creative Destruction can analyze issues of source of economic growth and of growth differences which are the key issues of growth theory including the endogenous growth theory. And Creative Destruction can combine the long-run economic growth and the short-run fluctuation which in our option are the same things of the dynamic process, and Cyclical Growth is fitter for illustrating such process.Different methodologies are used to discover growth process through Creative Destruction, such as mathematics, statistics, and history, at the same time, methods and results from physics and ecological are introduced in economics analysis, where numerical simulation is used for simulating this dynamic process.Creative Destruction proposed by Joseph Schumpeter is one step further than his Innovation Theory which just emphasizes the newly innovated, while Creative Destruction at the same time focus on the Destruction and its effects. By Creative Destruction, the replacement of the "old" innovations by the newly innovated products or technologies is the most important character of this dynamic competition which could be said as "led by the consumption and made by the production". Consumers always demand for more products varieties and products with higher qualities, which is the fundamental of the Creative Destruction and Innovation, and innovations are full-filled by the firms who are driven by the entrepreneur whose aim is to gain monopolistic profit. The difference between Innovation and Creative Destruction is that the latter emphasizes the monopolistic profit is temporary which would be destroyed by the other firms' innovation as they had built their monopolistic status on the former ones and gained monopolistic profits from destroying the former ones' where emphasizes this dynamics competition. Products can be divided into the final and the intermediate goods, where the Creative Destruction on the final goods has indirect growth effects and the one on the intermediate goods has direct growth effects. Creative Destruction on final goods includes the Learning by Doing effects, where this dynamics process are not only with more new final products innovating, but also with the price reducing. The Creative Destruction of the intermediate goods has the direct growth effects due to the improving of the production function. The engine of economic growth is the efforts to research and development (R&D) and the results of innovations. If there is Creative Destruction, the firm who plans to devote R&D and innovation must consider the rivals' actions who might destroy its current monopolistic status and profits. The experiences of the products and technology of Post and Telecommunications in China provide some evidences of this dynamics process.The differences will be widened even further while growing through Creative Destruction. That is, Creative Destruction could explain income inequality and growth difference around the world which is always looked upon as an unresolved puzzle in the growth theory. In our option these two issues have common aspects indeed where the former is the micro aspect and the latter is the macro one. As economic growth is driven by the innovation with the form of Creative Destruction, the differences in micro level and macro level will be enlarged and as it could be seen that individuals and regions are not identical primarily, so their differences would be even larger while growing. For micro level, the income inequality will be enlarged due to the individuals who are have different abilities and backgrounds will have further different opportunities in front of this new growth process which requires more skills. Therefore the individuals with higher human capital and adaptive ability w...