《《Entrepreneurship__Innovation_and_Growth》.pdfVIP

Entrepreneurship, Innovation and Growth * T. N. Srinivasan Abstract The three basic sources of growth in any economy are growth in inputs of production, improvements in the efficiency of allocation of inputs across economic activities, and innovation that creates new products, new uses for existing products and brings about increases in the efficient of use inputs. Solow’s path-breaking analysis of growth in the US economy during the first half of the twentieth century showed that the contribution of growth in inputs of production, namely labour and capital to aggregate growth, was around half, and the remaining half, that is the unexplained Solow residual, is commonly attributed to technical progress or the contribution of innovation in the sense I have used the term. Economic growth is driven significantly by innovation which increases the stock of useful knowledge. The process of innovation is largely endogenous, influenced by incentives, institutions and political economy. The paper exposits the analytics of the contribution to growth of innovation drawing on some recent models of endogenous growth. Increasing openness by reducing trade barriers and by encouraging foreign investment, plays an important role in spurring innovation, particularly as it occurs through learning by doing. In some models of trade between the industrialized North which innovates, and the developing South which imitates Northern innovation, trade accelerates the rate of innovation in the North