policymakers demonstrate

1 Innovation and Growth: The Schumpeterian
Perspective
Philippe Aghion and Ufuk Akcigit
Abstract
This chapter shows how the Schumpeterian growth paradigm can be used both
to shed light on various aspects of the growth process which cannot be easily
understood using alternative paradigms, and also to think about policies to
foster innovation-led growth in a developed economy. In particular it will: (i)
look at the relationship between growth and competition; (ii) shed light on how
growth relates to firm dynamics and the size distribution of firms; (iii) revisit
the debate on how growth relates to income inequality and social mobility; and
(iv) discuss the role of the state in fostering innovation-led growth, and question
the design and limits of R&D subsidies, or the desirable scope for patent protection,
or whether the government should provide sectoral state aids or instead
limit itself to pure horizontal targeting.
1.1 Introduction
There is a broad consensus among most European leaders and in Brussels on the
importance of structural reforms to foster innovation-based growth in Europe.
However, this consensus has not reached the European public at large. One
recent example is France, where the timid reforms proposed by the Economy
Minister have met opposition from all political parties. So often do we hear that
structural reforms amount to austerity, and therefore are detrimental to growth
and employment. Similarly, a commonly held view is that going for supply
side policies (structural reforms or fiscal devaluations aimed at fostering such
reforms) necessarily means that we have decided to ignore the demand side.
We also hear that a fiscal system conducive to innovation and entrepreneurship
would necessarily aggravate inequality and reduce social mobility. The purpose
of this chapter is twofold: first, to bring the reader up to speed with recent
research in the Economics of Innovation and Growth; second, to provide the
reader with the theoretical and empirical background to think about growth
policy design in EU countries.
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