A Rubric for Estimation of Efficiency of Progression on a General Equilibrium Growth Path

Abstract

This study develops a formal theoretical rubric for estimation of the efficiency with which a country progresses on its general equilibrium growth path towards its steady state growth phase. Empirical tests confirm robustness of the metric, and show, contrary to assumptions of growth theory that, in most countries, between 10 and 70 percent of GDP Per Capita growth is generated not by technical change that is induced by innovations, but by any or all of 'demand-pull entrepreneurship', rent seeking, and crony capitalism. This finding yields the important implication that innovation systems of many developed countries inherently are unable to cater to growth demands that are implied by population levels and standards of living. Inequality then is traceable, in part at least, to inadequacies of countries' innovation systems. Empirical findings yield the insight that whereas countries ought to be engaged in searches for highest quality innovations (i.e. 'top-down innovation systems'), most countries are engaged with innovation strategies in context of which they attempt to leverage higher quality innovations on 'already existing' innovations (i.e. 'low-high innovation systems'). Given low-high innovation systems reward incumbency, there is arrival at innovation systems that stifle, rather than stimulate arrival of new types of innovations, with outcome dependence on any or all of demand-pull entrepreneurship, rent seeking, or crony capitalism is exacerbated. Consistent with superiority of top-down innovation systems, all sample countries, which adopt the innovation system progress efficiently on the general equilibrium growth path.