Animal Spirits Through Creative Destruction
Patrick Francois, Huw Lloyd-Ellis
American Economic Review · 2003 · Volume 93 · Issue 3
DOI: 10.1257/000282803322156972
Abstract
We show how a Schumpeterian process of creative destruction can induce rational, herd behavior by entrepreneurs across diverse sectors as if fueled by "animal spirits." Consequently, a multisector economy, in which productivity improvements are made by independent, profit-seeking entrepreneurs, exhibits regular booms, slowdowns, and downturns as part of the long-run growth process. Our cyclical equilibrium has higher average growth, but lower welfare than the corresponding acyclical one. We show how a negative relationship can emerge between volatility and growth across cycling economies, and assess the extent to which our model matches several features of actual business cycles.
Keywords
Business Fluctuations, Cycles, One, Two, and Multisector Growth Models, Technological Change, Research and Development, Intellectual Property Rights: General
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