Growth models of future will be driven by innovation. The proposition has been studied in detail by 2025 Economics Nobel laureates — Joel Mokyr, Phillipe Aghion and Peter Howitt. The winners have worked on mathematical models at the macrolevel to boost growth through innovation.
They have drawn from Joseph Schumpeter’s concept of creative destruction — it makes a product obsolete through a natural process of obsolescence. Some events such as Industrial Revolution took the world by storm in the mid-19th century. Later the process loses steam on account of imitation — no distinguished products or superior quality. Monopolies become imperfect competition. With innovation, there is a natural process of creative destruction. The ones who innovate move ahead, and others lag behind and whither. It affects subsequent growth cycles. There is disruption on account of innovation in electronics, engineering and automobiles. Innovation has driven East Asian story and the rise of China. It is true for Japan in the sixties and seventies, and for Asian tigers.
Mokyr speaks about propositional knowledge (not practically feasible) and prescriptive knowledge (which works in the real world).
The best results are obtained through the support of the financial system — availability of funds at competitive rates.
India has witnessed rapid strides by fostering startups. The technology is either indigenously developed or borrowed. There is import substitution in India, and most things are manufactured here. The government here creates a conducive environment and foreign direct investment pours in. Such innovation brings in technology too. It should be easier for companies to borrow from external sources. It fills the gap in financing innovation.
Innovation plays a great role in the growth process. In a globalized world, both ideas and funds could be borrowed. It facilitates growth faster. At the micro level, innovative firms enjoy a competitive advantage.
The economist trio has done their research pre-AI. And AI’s disruptive nature is yet to unfold. It prints to the path that is to be navigated in future in the presence of AI.
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