Competition and Growth: Reconciling Theory and Evidence (Zeuthen Lectures)

book: Competition and Growth: Reconciling Theory and Evidence (Zeuthen Lectures) | Philippe Aghion, Rachel Griffith

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Competition and Gr...

	Competition and Growth: Reconciling Theory and Evidence (Zeuthen Lectures) Philippe Aghion, Rachel Griffith The MIT Press, 2008 - 128 pages average customer review:based on 1 review view larger image
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Winner of the 2006 Schumpeter Prize Competition.

Though competition occupies a prominent place in the history of economic thought, among economists today there is still a limited, and sometimes contradictory, understanding of its impact. In Competition and Growth, Philippe Aghion and Rachel Griffith offer the first serious attempt to provide a unified and coherent account of the effect competition policy and deregulated entry has on economic growth.

The book takes the form of a dialogue between an applied theorist calling on "Schumpeterian growth" models and a microeconometrician employing new techniques to gauge competition and entry. In each chapter, theoretical models are systematically confronted with empirical data, which either invalidates the models or suggests changes in the modeling strategy. Aghion and Griffith note a fundamental divorce between theorists and empiricists who previously worked on these questions. On one hand, existing models in industrial organization or new growth economics all predict a negative effect of competition on innovation and growth: namely, that competition is bad for growth because it reduces the monopoly rents that reward successful innovators. On the other hand, common wisdom and recent empirical studies point to a positive effect of competition on productivity growth. To reconcile theory and evidence, the authors distinguish between pre- and post-innovation rents, and propose that innovation may be a way to escape competition, an idea that they confront with microeconomic data. The book's detailed analysis should aid scholars and policy makers in understanding how the benefits of tougher competition can be achieved while at the same time mitigating the negative effects competition and imitation may have on some sectors or industries.

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Highest Importance Empirical Studies with robust theory support

P. Aghion is one of the most important economists nowadays. With a solid background in mathematics, his studies are focused on relevant aspects of modern economics. One of this issues is the relationship between competition and innovation. There are microeconomic and macroeconomic issues to discuss. Traditional neoclassical economists are frequently naive when they try to link macroeconomy and innovation using the their oversimplified models. Exchange and interest rates behaviour are enough to prescribe policies that often lead to terrible results. One the other side, Heterodox economists always overestimate the importance of tacit knowledge and learning, without showing any concern with the link between development, education standarts and competition.
Aghion give us many clues about these complex issues. I strongly recommend this book (and endogenous growth theory too) to economists who want to improve their capacity to formulate viable and sound policies for sustainable development.

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